AI Drafter 
TaxTMI 
TaxTMI 
2018 (1) TMI 275
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....ter on increased in the year 2008 to Rs. 4,00,00,000/- divided into 40,00,000 equity shares of Rs. 10/- each by way of resolution dated 27.03.2008. The authorised share capital of the company was further increased to Rs. 8,00,00,000/- divided into 80,00,000 equity shares of Rs. 10/- each vide resolution dated 16.03.2009. Copy of these resolutions are at Annexure P- 3 (Colly). 2. The issued share capital of R-1 company at the time of filing of the petition is Rs. 4,00,00,000 divided into 40,00,000 equity shares of Rs. 10/- each and the subscribed capital was Rs. 3,28,10,000/- divided into 32,81,000 equity shares of Rs. 10/- each. By adding the additional allotment of 3,50,000 equity shares on 29.06.2011 and 4,00,000 equity shares on 10.10.2012 which are under challenge, the subscribed paid up capital has increased to Rs. 4,03,10,000/- divided into 40,31,000 shares of Rs. 10/- each. 3. The main objects of R-1 company was to produce, manufacture, crush, extract, refine, develop, process by any solvent process or any other method or otherwise acquire, import, export, sell and distribute or otherwise deal in extraction of oil from rice bran and other substances from which oil extr....
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....ach of Rs. 10/- each. The petitioner group thus had 12,000 shares together and the respondent group 9,000/- shares out of total 21,000 shares. In this way, the petitioner group had 57.14% of the total paid up capital whereas the respondent group had rest of the percentage of shareholding. Since the petitioners had prior commitments and fully engaged in the management of the parent company, the management and day-to-day affairs of R-1 company was entrusted to R-3 and R-4, who are the relatives of R-6 as the directors. The present Board of Directors at the time of institution of this petition are aforesaid two directors R-3 and R-4 and in addition to them, R-3 was appointed as director on 01.05.2008 and R-6 became the director on 01.08.2010. 9. It is also averred that w.e.f. 21.11.2007, R-1 company took on lease a solvent extraction plant owned by P-1 company located at village Saraud, Malerkotla-Ludhiana Road, Malerkotla for producing the crude rice bran oil for supply to the parent company for refining and further supply in the market. In the year 2008, R-1 company decided to set up its own solvent extraction plant for extraction of 400 tonnes per day of rice bran and 100 tonnes....
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....ooks of R-1 company as on 31.03.2009, the amount of Rs. 4,84,44,000/- was contributed by the petitioner group constituting 65.99% of the total sum. Besides giving fixed deposits, huge funds were given to R-1 company for its day to day operations by the parent company. Copy of the details of funds (interest free) given during the calendar year 2010, to R-1 company is at Annexure P-13. 11. However, after commencement of the production in January, 2009, R-3 and R-4 started acts contrary to the understanding and against the interest of the petitioner promoter group. The understanding at the time of incorporation of R-1 company was that the petitioners and the respondent group will hold shares in the same ratio/proportion as they were holding at the time of incorporation of the company particularly because R- 3 and R-4 were strangers to the original AP Group and were inducted at the instance of R-6. It is stated that R-3 and R-4 in collusion with each other being in control of Board of R-1 company, consistently diluted the shareholding of petitioners from 57.14% to 11.34%, as per the table enumerated below: Relevant period Petitioner Group Respondent Group 30.09.2004 5....
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....n, transferred and registered those shares in favour of R-2 company without the knowledge of the petitioners, R-3 and R-4 being the only directors and in complete control of R-2 company. R-3 and R-4 were even the only directors of R-1 company. P-1 company, therefore, has been fraudulently robbed of its entire investment in R-1 company, which was to the extent of 45.60% of the total shareholding. Copy of the said Annual Return is Annexure P-16. P-1 company was issued 14,96,000 shares only with the purpose of making the petitioner promotor group to remain in majority as per the original understanding thereby reducing its shareholding from 56.97% to 11.57%. In this way, the name of P-1 company was omitted from the register of members of R-1 company without any sufficient cause. 16. The further acts of oppression and mis-management relate to the issuance and allotment of additional equity shares on two occasions. Firstly, on 29.06.2011 the respondent group made allotment of 3,50,000 equity shares in favour of R-7 company, which is in complete control of the respondents, their family members and affiliates. It was further revealed on inspection of the record of Registrar of Companies....
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....f 14,96,000 shares in R-1 company of P-1 company, the name of P-1 company has been omitted from the register of R-1 company. 19. It would be relevant at this stage to describe the shareholding of P-6 to P-9 in R-1 company. P-6 is a public limited company having its registered office at New Delhi. This company has authorised P- 5 vide resolution dated 03.09.2012 Annexure P-6 for filing this case. P-6 is in the business of Real Estate and was holding 1,40,000 equity shares of Rs. 10/- each in R-1 company. It is alleged that the shareholding of P-6 has been reduced from 4.27% to 3.17% by unlawful allotment of 3,50,000 equity shares with the fresh allotment by R-1 company in favour of R-7 on 29.06.2011 and allotment of 4,00,000 equity shares to R-2, R-3, R-8, R-9 and R-10. 20. P-7 M/s Rajasthan Plantation Company is also a public limited company and has authorised Pushap Raj Singla to file the instant petition vide resolution dated 15.11.2012, copy of which is annexed as Annexure P-7. P-7 company is in the business of farming and holds 2,00,000 equity shares in R-1 company. The shareholding and voting rights of P-7 company has been reduced from 6.10% to 4.96% with the aforesaid a....
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....the petitioners have relied upon the letter of the Branch Manager of PNB, Dhuri Annexure P-20. 26. It was revealed from the Account of P-1 company maintained in Khanna Branch of HDFC Bank, that the amount of Rs. 15,00,000/- was transferred from this account to M/s A.P.Oils on 26.04.2011. P-1 company then got the Bank Statement for the period from 01.04.2011 to 31.03.2012 by writing letter dated 08.06.2012 Annexure P-21. HDFC Bank also informed that RTGS transfer in favour of A.P. Oils from P-1 company was not done at Khanna Branch of the Bank. But by its Jagraon Branch, where a unit of R-1 company is located. The Bank Branch of HDFC provided copies of the request letter dated 23.04.2011 and RTGS Transfer form dated 26.04.2011 furnished by R-3 and R-4 to the Bank. The request letter dated 23.04.2011 revealed the following facts :- (i) No printed regular/official letterhead was used for this purpose. Rather a computer generated letterhead was prepared and the same was used. (ii) In the request letter, which is signed both by respondent No.3, Mr. Ravi Nandan Goyal and respondent No.4 Mr. Shiv Kumar Goyal, it was pleaded that the cheque book of the HDFC Account of ....
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....copy of the audited balance sheet and profit and loss account of the year ending 31.03.2012 was supplied to them. There is also the requirement of approval of the shareholders in the general meeting for making fresh allotment of the shares, but the further allotment was done without compliance of the aforesaid clause 6 of the Articles of Association. 30. The petitioners have also made other allegations constituting the acts of oppression and mis-management, but the arguments were mainly confined to the aforesaid alleged transfer of 14,96,000 shares of P-1 company and issuance of additional shares only, but those allegations may be described in brief here-in-after. 31. It is stated that the capacity utilisation of R-1 company was just about 14.43% for the year ending 31.03.2011 thereby indicating that all the transactions of production, purchase and sale were not recorded in the books of account. The factory premises of R-1 company had also been raided by the Punjab Excise and Taxation Department from time to time which led to the seizure of incriminating documents revealing transactions, which were not accounted for in the books of account. The team of the Income Tax Departme....
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.... companies under the control and management of the petitioners, which are Ricela Healthcare Food Ltd. and AP Organic Pvt. Ltd. Copy of the report of CRISIL dated 10.04.2012 is at Annexure R-01. In this report, the CRISIL had combined the financial and business risk profiles of Ricela Health Food Ltd. and A.P. Organic jointly referred to as Ricela Group and not as AP group. The petitioners did not project R-1 company to be part of their purported Ricela Group. The CRISIL takes inputs from the company's management and the views presented in this report are those of the management of Ricela and AP Organic Pvt.Ltd. For the credit rating exercise, there is description of solvent extraction and refining capacity of the purported "Ricela Group" and the petitioners have included not only the "Group Companies", but also any other plant associated with the petitioners, but they have not included R-1 company though R-1 company achieved turnover of Rs. 135 crores for the year ending 31.03.2012 and non-inclusion of R-1 company in the CRISIL report of the companies under the management and control of petitioners belies the claim of the petitioners that they are the majority shareholders of R-1 c....
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....y. Two out of three Directors of P-1 company were R-3 and R-4 and, therefore, the complete management and control of P-1 company rested with the respondents. P-1 company being the transferor of the shares cannot challenge the aforesaid transaction. By demonstrating the shareholding pattern of R-1 company and the persons who executed the share transfer documents, the respondents alleged that the petitioners are not qualified to challenge the action of transfer of 14,96,000 equity shares in R-1 company as none of the petitioners are affected party. The only entities being effected are the shareholders of P-1 company and R-2 company. It is stated that the petitioners being shareholders of R-1 company, cannot challenge the said transfer. If anybody had a right to challenge this transfer, it could be only the shareholders of P-1 company or R-2 company. It is stated further that the transfer was effected by R-3 and R-4 as Directors of P-1 company as well as being the Directors of R-2 company. 39. With regard to the allotment of 3,50,000 and 4,00,000 equity shares in June, 2011 and October, 2012, it is stated that R-1 company had been increasing the issued subscribed and paid up capita....
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....itration proceedings in mid of 2010, the petitioners P-2 to P-9 and the respondents were having good relations. With these fresh allotment, the shareholding of the petitioner came down to 9.25%. However, in view of the grievances expressed by the petitioners, the respondents offered to restore the combined shareholding of P-2 to P-9 from 9.25% to 11.37% to a position before these fresh allotments, that was existing before these fresh allotments. It was agreed that the shares would be allotted to P-2 to P-9 in such number so as to restore their respective percentage. How much shares and percentage which the petitioners would be holding, in case the allotment according to the entitlement is to be made, is given in a tabulated form. The offer is made by R-7 company and R-3, who were allotted the shares at the same price at which they purchased the shares in June, 2011 and October, 2012. In any case, the respondents have even made an offer to buy the shares of P-2 to P-9. 44. It is stated that the issued subscribed and paid up share capital of R-1 company is Rs. 4,03,10,000/- divided into 40,31,000 equity shares of Rs. 10/- each. All the allotments of shares were made in accordance ....
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....eshly graduate son R-5 and with this object in mind R-5 was also made a Director of the company w.e.f. 01.05.2008. P-1 company was acquired not only by the petitioners, but also by the respondents, in which R-3 and R-4 were the controlling Directors. 49. It is denied that the principles of quasi partnership are applicable to R-1 company. In fact the petitioners never participated in the management of affairs of R-1 company nor did they subscribe to the equity capital, whenever there was need for such capital. Ever since the first allotment after initial subscription, the management and control of R-1 company remained with the respondents. It is denied that AP Solvex Limited was treated as parent company of R-1 company. Rather AP Solvex was not a shareholder of R-1 company nor its Directors were the Directors of R-1 company. The decision of AP Solvex to lend money to R-1 company was the decision of its Board of Directors of the said company and not that of the petitioners in their personal capacity. At the relevant time, plant of P- 1 company was on lease with Ricela Healthcare Food Ltd. and charge and the corporate guarantee were repaid and charges registered with ROC stood vaca....
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....art of the petitioner promoter group, as none of the constituents of the petitioner promoter group was its Director or shareholder, or linked to its operation in any other manner at the time of transfer. 54. According to the respondents, P-7 was having 30% of the shares in P-1 company in May, 2010, but this company is stated to be not a part of the petitioner promoter group, which did not control P-7 company either as Directors or shareholders. The petitioners in fact were about to withdraw their shareholdings from P-1 company as reflected in the agreement Annexure P-28 for referring the matter to arbitration. The transfer of the shares of R-1 company to R-2 company was carried and registered by a duly signed deed and sufficiently stamped. The petitioners are thus said to have concocted the story of their ignorance of the transfer of 14,96,000 equity shares. 55. The respondents have further stated that at that time record of P-1 company was with the petitioners. The transfer of 14,96,000 equity shares was made with the consent of petitioner No.4, who was a Director of P-1 Company. Immediately after the transfer of shares, the dispute between the parties was referred to arbitr....
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....rd resolution dated 10.10.2012 as mentioned in the documents. 59. The respondents have also alleged that according to petitioners, they were not having the bank statement of P-1 company for the entire financial year 2011-12 i.e. for the period from 01.04.2011 to 31.12.2012 till as late as on 08.06.2012 i.e. for more than one year as evident from the application dated 08.06.2012 made by Vijay Goyal petitioner No.4 to the HDFC Bank seeking copy of the bank statement for the aforesaid period on the ground that they have not received the aforesaid statement before the said application. In view of the above, the petitioners were not having any means to know the transfer of funds from the account of P-1 company to AP Oil Mills and thus could not be aware of the transfer of shares of P-1 in R-1 company in favour of R-2. It is admitted that two cheques from 50 leaf cheque book was in custody of P-4 and the RTGS transfer was thus made by the respondents as the Accountant of P-1 company told them that the cheque book was consumed and there was no cheque available. This is with regard to the transfer of the amount by RTGS from the account of P-1 in favour of AP Oil Mills. 60. It is stat....
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....ares is not required in the general meeting of the members. This allotment was made to improve the debt-equity ratio of the company. 65. It is further stated that the challenge by the petitioners that the share capital. has been increased to reduce the percentage of the shareholding of the petitioners to less than 10% cannot withstand the test to scrutiny. According to the respondents, there are eight shareholders of R-1 company from P-2 to P-9, which number is sufficient for them to take recourse to the provisions of Sections 397 and 398 of the Act. 66. It is further averred that R-1 company set up a new refinery and solvent plant at Jagraon in 2008-09 and it started showing better results in terms of revenue in the year 2009-10. The revenue growth rate had been 50% during the year 2009-12. The company's new plant at Jagraon has by itself shown revenue growth of over 60% during the period from 2010-12, which is expected to continue for the next year. The total sales of R-1 company in the year 2009 was worth Rs. 3,962 lacs which rose to Rs. 20,000 lacs in the year 2013. With regard to the sales of plant at Jagraon, the amount of sale in the year 2009 was Rs. 121 lacs, which i....
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....f shares is in violation of the provisions of Section 108 of the Act. In fact no Board meeting of P-1 company was held after purchase of 14,96,000 equity shares as there is a gap of only five days between the purchase of the shares on 19.05.2010 and the purported transfer took place on 24.05.2010. Even in the compliance certificate Annexure R-1 (attached with rejoinder) in respect of P-1 company for the financial year 2010-11, there is no mention of any Board meeting of P-1 company held between 19.05.2010 to 31.10.2010, attached with the rejoinder. This certificate is issued by R.K. Loomba Associates, the Company Secretaries of P-1 company. 72. There is even no resolution of R-2 company in terms of Section 292 of the Act for investing the amount of Rs. 15,10,960/- for buying the shares of R-1 company or authorising its representative to sign and execute the transfer deed on its behalf. The compliance certificate of R-2 company for the financial year 2010-11, Annexure R-2 confirms that no Board meeting of R-2 company was held between 01.04.2010 to 31.08.2010. This certificate is issued by Anil Jindal and Associates Company Secretaries of R-2 company. It is reiterated that the res....
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....00 shares and allotment of additional equity shares. 77. R-1 company has even not passed any resolution for issuance of fresh equity shares. It is admitted that the offer was not given to the members of the petitioner group before making fresh allotment, as would be evident from the minutes of the meeting dated 14.02.2013 between the representatives of both the parties Annexure R-5 in terms of order dated 13.02.2013 of the Hon'ble High Court. 78. R-1 being a company belonging to AP group of companies is a fact that was admitted in the loan applications dated 01.05.2007 and 15.07.2008 made to the Bank by R-1 company. Assurances are given in the applications that the company is to sell its entire production of oil to the APS group and, therefore, there is no marketing problem. The copy of loan application dated 15.07.2008 is signed by none other than Bhuwan Goyal, respondent No.5. Copy of that loan application is Annexure R-8 attached with the rejoinder. 79. The name of AP Solvex Limited has been changed to RICELA w.e.f 07.07.2010 to align with the brand name RICELA of the consumer product of the group company. It is further stated that in an invitation card dated 27.05.2011....
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....ndents offered to arrange 45.60% shares to the petitioner group in the name of P-1 company and also to give majority representation to the petitioner group in the Board of Directors of P-1 company. 82. Regarding the payment for the transfer of 14,96,000 equity shares in favour of R-2 company is concerned, it is stated that the respondent No.2 had deposited a cheque No.0740782 on 22.04.2011 from the Jagraon Branch of the HDFC Bank in the account of P-1 company and this cheque bounced for the reason that the signatures of the drawer were incomplete as evident from the bank statement Annexure R-6. However, the respondents also made reference to the payment made on the basis of post-dated cheque bearing No.730964 on the ground that some payment was to come to respondent No.2 in the month of November, 2010 which allegation does not match with the Bank Statement showing dishonour of a different cheque. The respondents in fact did not make a reference to this cheque No.0740782 in their reply, which was presented on 22.04.2011 and bounced on 23.04.2011 as per the bank statement Annexure R-6. 83. The respondents filed sur-rejoinder dated 05.04.2014. It is stated that R-1 company regis....
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....ed towards the consideration of transfer of 14,96,000 shares by R-2 having not been encashed, it is stated that while finalising the accounts of R-2 company for the year 2010-11, the matter relating to the post-dated cheque was noticed and, therefore, there was no need to show the amount lying outstanding in the financial statements of R-2 company upto the year ending 31.03.2011. The total shareholding of R-1 company in the year 2008 was 32,31,000/- which rose to 32,81,000 in the next year i.e. fourteen times. 88. Rest of the details in the sur-rejoinder pertain to the allegations of mis-management in the working of R-1 company, but those issues need not be discussed in detail as the arguments were confined only with regard to the transfer of 14,96,000 shares and the issue of fresh equity shares. The other details mentioned in the sur-rejoinder are in the nature of arguments in support of the respondents' case and that is why even the rejoinder filed by the petitioners is also quite lengthy. 89. After inspection of the record of R-1 company, the petitioners filed an application dated 16.03.2015 with the then Company Law Board on 17.03.2015 for placing on record the additional....
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....t the time of hearing of the main petition to contend that the document has no bearing on the company petition. 94. During pendency of the main petition, R-3 and R-6 filed CA No.255 of 2015 dated 26.10.2015 under Regulation 44 of the Company Law Board Regulation, 1991 (for brevity the 'Regulations) stating therein that the above respondents being the Directors of R-1 company entered into an arbitration agreement dated 12.07.2015 with P-2 to P-5, the Directors of Ricela Health Foods for referring their disputes to arbitration, and appointing Arbitral Tribunal comprising of Ravi Kalra, Subhash Chand Singla, Meghraj Garg, Hemant Jindal, Satdev Jindal and Deepak Jindal to resolve the dispute between these parties. Copy of the agreement is Annexure A-1. After due proceedings before the Arbitral Tribunal, a consent award was passed on the same day i.e. 12.07.2015 providing as under: "1. That regarding the share of Mr. Arun Goyal & Ravi Goyal in A.P. Solvex now known as Ricela Health Food & share of Solvex in Bhawanigarh, Sunam and Malerkotla has been mutually decided by the arbitrators to give them Rs. 22.21 crore (Twenty two crore and twenty one lac only) to Arun Goyal and R....
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....rators. 13. That regarding the Solvent Plants at Baghapurana, A.P. Dhuri will run the plant till lease deed is pending. They will not extend the period of lease deed. If both the parties do not want to run both the plants at Baghapurana, the lease money will be equally shared between both the parties only upto one year. 14. That regarding the common customers, both the groups will supply oil in the ratio of 35% to 65% i.e. Jagraon Group will supply 35% approx. & Dhuri Group will supply 65% approx. All other issues regarding the sale of Refind Oil will be discussed on common platform or with the consent of all six arbitrators. 15. If any other issue arises in future, the arbitrators will be approached." Copy of the arbitration award is Annexure A-2. This award is signed and acknowledged by both the groups i.e. the parties described above. 95. It is thus submitted that the arbitration award operates as res judicata between the parties and the petitioners are obliged to withdraw the present petition and cannot challenge the shareholding in respect of R-1 company. It is stated further that the applicants have right to enforce all other directions in ter....
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....o 5 have not been supplied a signed copy of Annexure A-1 and A-2 as required by the Arbitration Act. The petitioners filed CA No.184/II/2015 for production of original agreement and the respondents stated that they were not in possession of the original/signed copy of such documents. This allegation, however, would be insignificant in view of the order dated 25.08.2015 passed by the Company Law Board declining the prayer for production of the original agreement on the ground that the signatures of the documents have not been denied. It is stated that the award Annexure A-2 is not on a stamp paper as required under the provisions of Indian Stamp Act. The document also does not mention the place where the proceedings took place. Moreover, none of the terms of the document have been acted upon by the parties so far. It is further stated that the principles of res judicata cannot apply as the documents Annexure A-1 and A-2 do not relate to the subject matter of the present company petition, for which the Company Law Board (Now Tribunal) has the exclusive jurisdiction. 98. Rather R-3 and R-6 have approached the police authorities at Sangrur District for enforcement and implementation....
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....settlement. 102. In reply to the allegation that some of the petitioners were not parties to the arbitration agreement and the award, it is stated that P-6 and P-7 are merely investment companies and used by P-2 for investing funds and resources of A.P. Solvex Ltd/Ricela Health Food in other companies controlled and managed by various people in respondent and petitioner groups. In this case, the authorised signatory to file this petition for P-6 and P-7 companies are P-5 and the son of P-3 respectively. P-8 and P-9 are the wife and brother of P-3 and they held only 1000 shares in R-1 company. 103. The respondents have categorically denied that the police complaint Annexure R-1 attached with the reply was filed by them. The same is stated to have been created. Looking into the document Annexure R-1 addressed to Senior Superintendent of Police, Sangrur, the same does not show the signatures of any person and, therefore, this document has to be ignored out of consideration at the outset. 104. With regard to the complaint dated 21.09.2015 made by R-3 to R-6 under the subject "complaint for registration of criminal case against P-2 to P-5 and three others" dated 21.09.2015, it ....
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....vits of three of the persons, namely; Megh Raj, Ravi Kumar Jindal and Deepak Jindal, who acted as Arbitrators out of the six for taking the same on record, in which these persons stated that they along with some other persons attempted to resolve the dispute in the month of July, 2015 and differences between the parties to these documents, but it was only an endeavour by them not intending to be the arbitration proceedings. No value can be attached to these affidavits, but this would of course bring an admission of signatures of P-2 to P-5 and R-3 and R-6 over these documents. 110. The question, however, would be whether such a procedure is permissible in the eyes of law. In the facts and circumstances of the case such a document can at best be considered as a compromise in writing signed by a few of the parties but not at least an arbitration agreement or award. 111. For recognising a compromise in a pending case the principles as laid down in Order 23 Rule 3 of the Code of Civil Procedure should be followed. It requires that the compromise has to be in writing and signed by all the parties and has to be recorded by the Court. Rule 3 of Order 23 CPC says that where it is pro....
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....ween the parties on 12.07.2015, was in fact an arbitration settlement as now sought to be alleged. 115. The issue needs to be discussed on the legal perspective on the subject. Shri J.S. Puri, Advocate learned counsel for respondents relied upon a judgment of Hon'ble Supreme Court in P. Anand Gajapathi Raju v. P.V.G. Raju [2000] 4 SCC 539. That was a case dealing with the proposition as to whether reference to the Arbitration can be made in terms of Section 8 of the Arbitration and Conciliation Act, 1996 even during the pendency of appeal before the Hon'ble Supreme Court. 116. Section 8 of the Arbitration and Conciliation Act, 1996 reads as under:- " Power to refer parties to arbitration where there is an arbitration agreement. (1) A judicial authority, before which an action is brought in a matter which is subject of an arbitration agreement shall, if a party to the arbitration agreement or any person claiming through or under him, so applies not later than the date of submitting his first statement on the substance of the dispute, then, notwithstanding any judgment, decree or order of the Supreme Court or any court, refer the parties to arbitration unless ....
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....itration agreement in question covered all the disputes between the parties in the proceedings before the Hon'ble Supreme Court and even more than that. In that case, the arbitration agreement was in the form of an application, which was signed by all the parties and thus, it was found that the same meets with the requirement of Section 7 of the Arbitration and Conciliation Act, 1996. 119. So, that was a case, where the Hon'ble Supreme Court referred the disputes to arbitration in terms of Section 8 of the Arbitration Act, 1996 and disposed of the appeal, as nothing else remained to be decided. 120. That situation does not arise in this case because the principle as emanates from the aforesaid judgment is where all the parties apply to the Court where the lis is pending, for reference of the dispute to arbitration even after the statement of defence has been filed, because the other party does not object to it and is also party to the agreement. 121. So, this judgment will not be helpful to the case of the petitioners. The document Annexure A-1 said to be an arbitration agreement, which says that there are some differences between the first and second parties and by naming....
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....on was filed. 125. Similarly, the judgment in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums [2003] 46 SCL 337 (SC) arose out of a suit pending before the Civil court. There was a dealership contract between the plaintiff and Hindustan Petroleum Corporation Ltd., which was allegedly violated by the Dealer due to the short supply of spirit and high speed diesel to disbursing units, which were tampered with by the Dealer. The Hon'ble Supreme Court held that under Section 16 of the Act, 1996, any objection as to applicability of the arbitration clause to the facts of the case could be raised before the Arbitral Tribunal concerned. The Court could not dwell into this question, but should have left it to be decided by the Arbitral Tribunal. It was further held that the existence of dual procedure one under the criminal law and the other under the contractual law is well acceptable legal phenomenon in the Indian jurisprudence. Therefore, the application filed by the appellant under Sections 8 and 5 of the Arbitration Act was allowed and the trial court was directed to refer the dispute to arbitration. So, this judgment also is on different facts, as firstly it arose out....
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....ct the witnesses of the plaintiff, who is the dominus litis of its litigation. That matter also arose out of a civil suit. 129. Learned counsel for the petitioners, however, referred to the judgment of Hon'ble Punjab & Haryana High Court directly dealing with the issue. It is reported in Smt. Sudershan Chopra v. Company Law Board [2004] 52 SCL 429 in which the matter arose out of the proceedings in the company petition filed under Sections 397, 398, 402, 403 of the Companies Act, 1956. The Hon'ble High Court held as under: "58. We are also of the opinion that the unanimous opinion in the High Courts dealing directly with the issue raised appears to be that no arbitration in cases such as the present one is permissible. In O.P. Gupta v. Shiv General Finance (P.) Ltd.47, Company Cases 279, O.P. Gupta's case (supra), while dealing with an identical situation, a Single Bench of the Delhi High court observed as under: "I fully agree that no arbitrator can possibly give relief to the petitioner under Sections 397 and 398 and will be unable to pass any order under Section 402 or 403 of the Companies Act. An order of stay in these proceedings will be tantamount to dism....
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....matter which can form the subject matter of an arbitration, for an arbitrator can have no powers such as are conferred on the court, such as S.402 of the Companies Act." 130. The Hon'ble High Court further held that the statutory jurisdiction of the company Law Board and the right of appeal against its order cannot be ousted even by consent of the parties. 131. In Manavendra Chitnis v. Leela Chitnis Studies (P.) Ltd. [1985] 58 Comp. Cas. 113 (Bom.), it was further held by the Hon'ble Bombay High Court that the scope of two enquiries, namely; that of the petition for setting aside the award and the petition under Sections 397 and 398 of the Companies Act are wholly different. In view of this, Section 10 of the Code of Civil Procedure read with Section 141 can have no application whatsoever nor can the question of exercising powers under Section 151 of the Code of Civil Procedure arise. 132. The case law on the subject has been discussed in detail by the Hon'ble Principal Bench of the Company Law Board in "Mr.Christian Muller and Ors. V. M/s A & C Braid and rope Company Private Limited", CA No.170/C.1/2014 in CP No.109 ( ND)/2014, decided on 05.10.2015. . It was held t....
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....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." 133. In Apex FRP Chemicals (P.) Ltd. v. Om Prakash Gupta W.P. (C) No.3174 of 2016, decided on 18.04.2016, which arose in a writ petition filed before the Hon'ble Delhi High Court challenging the order of the Company Law Board whereby application of the petitioners under Section 8 of the Arbitration Act, 1996 was dismissed. It was contended that the Articles of Association of the company clearly provide that all the disputes pertaining to the affairs of the company are to be referred to the arbitration. The Hon'ble Delhi High Court held as under: "However, this Court is of the view that here petitioner is invoking a statutory remedy which is in addition to the contractual remedy. Moreover under Section 397 (2) (b) of the Companies Act, 1956, Company Law Board has to come to a conclusion that a case for winding up is made out, prior to granting any relief. In Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. (1999) 5 SCC 688, the Supreme Court has held that arbitration clause is not attracted to....
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.... nor Ricela Health Foods Limited is party to the present case. The other term is that both the parties agree to supply the oil in ratio of 35% to 65% i.e. Jagraon group will supply 35%, and the Dhuri group 65% approximately. This clause has been made an important term in the alleged award without the concerned companies being parties to the arbitration agreement. 138. The important factor to be noticed is that the terms of reference were not at all clarified in the document of Appointment of Arbitrators Annexure A-1. The document of appointment of arbitrators refers to the names of P-2 to P-5, the Directors of Ricela Health Foods Ltd. as the first party and R-3 and R-6, the Directors of R-1 company, as the second party. It is mentioned that there are some disputes between the parties and six persons named in the document were appointed as the Arbitrators. The agreement does not at all relate to what is the dispute between the parties and how the terms of reference would be governed. 139. The entire procedure laid down in the Arbitration Act, 1996 has been given a complete go-bye. Section 23 of the Arbitration Act says as under:- "Statement of claim and defence.- (1) ....
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...., within that period of time, shall be deemed to have waived his right to so object." 142. Any such objection can be raised by the party to the agreement in terms of sub-section (2) of Section 16 of the Act, which says that the plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because he has appointed or participated in the appointment of an arbitrator. 143. The Hon'ble Supreme Court held in Narayan Prasad Lohia v. Nikunj Kumar Lohia [2002] 38 SCL 625 (SC), that the composition of the arbitral tribunal cannot be challenged in application under Section 34 of the Arbitration Act, if a party chooses not to object. The Hon'ble Supreme Court further held in that case that it is no longer open to contend that under Section 16 of the Arbitration Act, a party cannot challenge the composition of arbitral tribunal before the arbitral tribunal itself, but such a challenge must be taken under Section 16 (2) of the Act not later than submission of statement of defence. It was further held that a conjoint reading of Section 10 and 16 of....
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....ed counsel for respondents contended that the record of P-1 company was with the petitioners and respondents had no access to it after P-1 company was illegally taken over. But there should have been at least the Board resolution of R-1 company dated 24.05.2010 accepting such transfer from P-1 in favour of R-2 company. The respondents did not set up any plea about passing of the resolution dated 24.05.2010 in written reply, but on inspection of the record, the copy of resolution dated 24.05.2010 was produced, which was a loose sheet. It is pertinent to note that R-1 company itself prepared the compliance certificate dated 30.08.2011 Annexure R-3 attached with the rejoinder, issued by M/s Sushma Gupta & Associates, Company Secretaries of R-1 company on examination of the record i.e. the account books and papers of R-1 company required to be maintained under the Companies Act, 1956 and Rules thereunder. In paragraph 4 of this certificate, it is stated that R-1 company held only seven meetings during the financial year 2010-11 and there is no reference to the meeting dated 24.05.2010 in the said resolution. If respondents have ultimately shown the copy of a resolution dated 24.05.2010....
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....h the rejoinder) to the effect that R-2 company held six meetings during the financial year 2010-11. These meetings were held on 01.04.2010, 31.08.2010, 30.09.2010, 20.12.2010, 28.02.2011 and 31.03.2011 and there is no reference to any resolution around 24.05.2010. 150. It was rather contended by learned counsel for petitioners that there is a significant mis-match between the number of Board meetings as per the record produced before the Company Law Board and the dates of Board meetings reported in the compliance certificate for the relevant period. The contention on behalf of the respondents that non-mentioning of the dates of certain Board resolution in the compliance certificate filed with the Ministry of Corporate Affairs is only a clerical error cannot withstand the test of scrutiny. 151. Section 108 of the Companies Act, 1956 says that a company shall not register transfer of shares in, or debentures of the company, unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee and specifying the name, address and occupation, if any, of the transferee, has been delivered to the company along with....
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....o why just within five days of P-1 company acquiring 14,96,000 shares in R-1 company, would transfer its entire shareholding in favour of R-2, and omitting the name of P-1 company from the list of the shareholders. Learned counsel for respondents contended that it was because of the tax planning that such a procedure was adopted. I am, however, of the view that such a plea could be believed only on the basis of some authentic record of the companies. 155. Another contention of learned petitioners' counsel is that it is well settled principle of law that the transfer of shares has to be for a valuable consideration, which was not paid, when the transfer was recorded on 24.05.2010. Admittedly the amount was transferred for showing the payment of consideration of this transfer by way of RTGS transfer on 26.04.2011 i.e. almost after about one year of the transaction, as evident from the bank statement of R-1 company Annexure R-6 attached with the reply. Learned counsel for petitioners referred to an entry dated 22.04.2011 of the deposit of Rs. 15,10,926/- by way of cheque No.0740782, but reverse entry was made on 23.04.2011 as the cheque was dishonoured with the remarks 'drawer's si....
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....ny was not relied upon in the reply and produced only when the documents were permitted to be inspected. This resolution was also not mentioned in the compliance certificate of R-1 company. It is, therefore, held that the transfer of 14,96,000 shares by P-1 company in favour of R-2 is not legal and thus liable to be set aside with a further direction that these shares be transferred back in favour of P-1 company by deleting the name of R-2 company from the register of R-1 company with a further direction to write off the loan of Rs. 1,50,00,000/- shown in the account of R-2 company. 159. With regard to the challenge to the allotment of 3,50,000 additional shares in the meeting held on 29.06.2011 in favour of R-7 and 4,00,000 shares on 10.10.2012 in favour of R-2, R-3, R-8, R-9, it was contended that there is violation of clause 6 of the Articles of Association of the company. Clause 6 of the Articles of Association Annexure P-2 says that the subject to the restriction imposed upon the general meeting, the shares shall be in the control of the Board of Directors who may allot or may otherwise dispose of the same on such terms and conditions as it thinks fit. However, no detailed ....