TaxTMI 
TaxTMI 
2014 (9) TMI 1183
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....on. He submitted that the company petition has been filed by the respondents herein claiming existing certain disputes and differences in relation to the affairs of the 1st applicant company viz, Mysore Realty Pvt Ltd (hereinafter referred to as the company). It is submitted that Article-103 of the Articles of Association of the company, which constitutes by law, a binding contract between the company and its shareholders, and inter se shareholders provides as follows: 'Article-103 - "Except as provided in Article 104, the parties hereto irrevocably agree that any dispute, controversy or claim arising out of, relating to or in connection with the company, promoters and investors (including any provisions of any exhibit, annex or schedule hereto) or the existing, breach termination or validity hereof (a "Dispute ") shall be finally settled by arbitration, The arbitration shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996. The arbitration shall be held at Mumbai The Investor No. 1 Investor No. 3 each shall appoint one arbitrator, the Investor No. 2 and Investor No. 4 shall jointly appoint one arbitrator and the company and promote....
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....greement and refund of the remaining amount to the shareholders concerned, vi. permanent injunction restraining the respondents 2 to 7 from allotting further shares in the R1 Company without offering the same proportionately to the petitioners and other shareholders as per the shareholding agreement and as per the shareholding existed prior to the allotment impugned in the petition. 3. It is submitted that the above issues are covered in the shareholders' agreement and Articles of Association as follows: I. Clause 8.1 and 8.2 of the shareholders agreement provides on issues concerning issue of further shares and the procedure to be adopted along with the right of pre-emption etc. II. Article 16 and 17 of the Articles of Association provides on issues concerning issue of further shares III. Clause 9.1.1 & 9.1.5 shareholders agreement provides the constitution of the Board of directors along with the representation required by the promoters also along with the Investors and consent rights etc clearly reflecting that the clause provides for promoters right to appoint one director and one observer on the Board who shall not have voting right IV. Article 80 of the Article....
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.... at Mumbai. The Investor No.l, Investor No.3 each shall appoint one arbitrator; the Investor No.2 and Investor No.4 shall jointly appoint one arbitrator and the company and promoters shall also jointly appoint one arbitrator. In the event that any party fails to appoint an arbitrator within 15 days after receipt of written notice of the other party's intention to refer a dispute to arbitration, such arbitrator shall be appointed by a court of competent jurisdiction on an application initiated by any party. An arbitral tribunal thus constituted is herein referred to as a "Tribunal". In the event, an appointed arbitrator may not continue to act as an arbitrator of a Tribunal, then the party that appointed such arbitrator shall have the right to appoint a replacement arbitrator in accordance with the provisions of this section 14.4.1", 5. It is submitted that the respondents/petitioners have purposely not made the shareholders as respondent knowing very well that the same would be referred to arbitration and to circumvent this, they have arrayed the directors as respondents for reliefs that could not be granted to them from the directors. Even for arguments sake it is assumed tha....
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....mpany and in the shareholder's agreement dated 30.07.2008 and vacate any interim orders passed and consequently dismiss the company petition and render justice. In support of this case the learned counsel relied upon following citations. 1. Bialetti Industries S.P.A v. Rachit Suresh Gangar 2. Pinaki Das Gupta v. Maadhyam Advertising (P.) Ltd. [2002] 38 SCL 170 (CLB - New Delhi) 3. Escorts Finance Ltd. v. G.R. Solvents & Allied Industries Ltd. [1999] 20 SCL 23 (CLB - New Delhi). 4. Boot Allen & Hamilton Ine v. SBI Home Finance Ltd. [2011] 5 SCC 532 5. Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. 6. Food Corpn. of India v. Yadhav Engineer & Contractor 6. The respondents 1 & 2 have filed their detailed counter to this application and denied all the averments made in the application. Shri P H Arvindh Pandian, learned senior counsel appeared for the respondents submitted that the applicant company has filed the present application under section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter called as Arbitration Act) only to deprive the respondents from their lawful right of filing a petition under section 397, 398 and 237 of the Companies Act. 1956 (....
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....arties to the present application. Further there are 10 promoters who are parties to the SHA and their names are given in the Schedule 1 of the SHA, Mr H.P Basavaraju and Mr. Ramakrishna alone are the parties to the proceedings before the Hon'ble Bench and they are the petitioners in the main petition. Therefore one of the conditions laid down under the provisions of section 8 of the Arbitration and Conciliation Act has not been satisfied with. It is submitted that on the basis of the above point alone the application is liable to be dismissed. The respondents also reserve the right of filing an application to amend the petition in order to bring the subsequent events to the knowledge of the Hon'ble Bench. It is pertinent to submit that the respondents in the main petition has filed one application in CA No. 1/2013 invoking the provision of section 8 of the Arbitration Act and after filing the counter statement by the respondents herein and knowing fully well that the said application would be dismissed, the respondents in the main petition have withdrawn the said application and filed the present application in which nothing but vague statements are only made. The responde....
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.... on 19.02.2013 and the 2nd respondent has received the copy on 22.02.2013. Besides, the above service of petition, the copy of the petition was sent to all the respondents by email on 19.02.2013. It is submitted that all the respondents are aware that the petition is being moved on 28.02.2013. Immediately after receiving the copy of the petition, the notice dated 22.02.2013 was issued to the respondents herein invoking the arbitration under SHA, however no one has represented before the Hon'ble Bench on 28.02.2013 for the reasons best known to them. Since the pleadings and the prayers made in the main petition are not pan and parcel of the SHA, the respondents herein did not reply to the notice dated 22.02.2013. On mentioning the petition before the Bench on 28.02.2013. the Hon'ble Bench has directed the respondents therein to file their counter within a period of four weeks and posted the matter on 11.06.2013. However, the applicants herein have not complied with the direction dated 11 06.2013 and the earlier application under section 8 of the Arbitration Act was filed only on 16.09.2013 and the Hon'ble Bench has observed all these in the order made on 16.09.2013. The ....
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....of causes of action and of parties. In other words, all the parties in such legal proceedings should be parties to the arbitration agreement and all issues in the company petition should be within the four corners of the arbitration agreement for the arbitration to be applicable. It is further submitted that none of such requirements are satisfied in the instant case. In so far as the cause of action of the present company petition is concerned a myriad of issues arise in the company petition several of which have no connection with the shareholders agreement dated 30.07.2008. Therefore there are no disputes arising under or by virtue of the shareholders agreement dated 30.07.2008 for being capable of being referred to arbitration. Significantly, the issues raised in the company petition relate to several acts of oppression and mismanagement by the respondents and relief against such acts is sought for in the company petition. By no stretch of the imagination could the same be said to be arise only out of the shareholders agreement dated 30.07.2008 and therefore be liable to be referred to arbitration. It is submitted that the entire action and correspondence would show that the di....
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.... 1. Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [1999] 22 SCL 156 (SC) 2. Shankarlal Laxminarayan Rathi v. Udaysingh Dinkarrao Rajurkar AIR 1976 BOM 237 3. Chiranjeelal Shrilal Goenka v. Jasjit Singh [1993] 2 SCC 507 4. Booz Allen & Hamilton Inc (supra) 5. Al Champdany Industries Ltd. v. Blancatex AG [2011] 164 Comp. Cas. 122 (Cal.). 11. Heard the learned counsel appeared for the respective parties, perused the pleadings, documents and citations relied upon by them. After analysing the pleadings and documents the only issue felt for consideration is whether the applicant has made out any case to refer the subject matter of the company petition to arbitration? Now I deal with the issue: Before commencing to answer the issue as to whether the applicant has made out any case to refer the subject matter of the company petition to arbitration, it is essential to keep in view the statutory requirements of the applicable provision of the Arbitration and Conciliation Act, 1996 vis-a-vis, the prima facie nature of the company petition and the same are briefly discussed as under. Since the applicant has invoked the provisions of Section 8 of the Arbitration and Concil....
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....e suit are parties to the arbitration agreement; (iii) whether the disputes which are the subject matter of the suit fall within the scope of arbitration agreement; (iv) whether the Defendant had applied under Section 8 of the Act before submitting his first statement on the substance of the dispute; and (v) Whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration." 13. The aforesaid factors need to be analysed as to whether the factors enumerated by the Apex Court exist or not, and the same are discussed as hereunder: (A) Now I deal with the criteria whether there is an arbitration agreement among the parties (i): In so far as the existence of agreement is concerned, it is seen that the CA No.3/2014 was filed however no date was mentioned in the said application except the month i.e November 2013 and duly accompanied by a verifying affidavit dated 06.11.2013 along with the alleged agreement with the prayer for referring the subject matter of CP to arbitration in terms of the agreement between the parties and Articles of Association, The application was accompanied by a copy of agreement as Exhibit R1 at page 11. From the perusa....
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....07.2008 is unenforceable and hence the question of referring the matter to arbitration does not arise. In terms of Arbitration and Conciliation Act, 1996 to satisfy the requirement of section 8 one must satisfy the basic necessity of existence of an agreement as stipulated under section 7 of the Act. In the facts and circumstances of the matter herein the said document namely SHA dated 30.07.2008 having not been signed by the parties described as promoters in Schedule 1, the said document cannot be construed as an agreement. Like in the previous occasions, wherein the applicant produced a draft agreement dated 20.05.2008 wherein some of the parties have signed the said document which had more blanks and in comparison to the said draft one more document dated 30.07.2008 was also produced and the same was also signed by some of the parties, this Bench was of the view that the 2nd document is also a draft document like the previous one and the parties have not finalised the terms of agreement even on 30.07.2008. The SHA dated 30.07.2008 having described the promoters as those persons who are listed out in Schedule I numbering into 12 individuals, in the absence of the signature of the....
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....ject matter of the Company petition versus claim of arbitration is concerned, in determining this aspect though it is not essential to get into the averments in the Company petition in the absence of reply/counter from the respondents. It is necessary for this Bench to look in the main relief sought for by the petitioners. The same are reproduced hereunder: The Petitioners, therefore, prays that: 1. In view of the facts mentioned in Para 6 of this petition, the Hon'ble Bench of the Company Law Board may give a direction that the allotment of 77,100 voting equity shares, 765 non Equity shares. 192290 Clause A convertible preference shares and 54397 Class B convertible preference shares made on 04.06.2010 to India Accelerated Growth Real Estate Ltd., Mauritius, as illegal, null and void and consequent cancellation of these shares. 2. To declare the form 23 dated 06.04.2010 as null and void. 3. The removal of the petitioner's viz., Promoter Directors U/s.284 of the Companies Act, 1956 on 18.12.2012 and form 32 dated 18.12-2012 as null and void and re instate them as Directors without interruption with powers of management as per the provisions of Shareholder of Agreement....
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....areholders Agreement and called for the Petitioners to remedy the same and further notified that legal proceedings will be commenced failing such remedial measures. Owing to failure of the Petitioners to comply with the demand, the investors and the Applicant Company had caused a legal Notice dated 22.02.2013 to be issued specifically invoking the Arbitration Agreement between the parties and also proposing names of Arbitrators proposed by the Applicants are all legendary Jurists and former Judge of the Hon'ble Supreme Court of India. Therefore ail issues of contentions by the parties involved would best be served and legally enforceable in an Arbitration as provided in the shareholders' agreement and the Articles of Association. Copy of the same is produced Exhibit R-3" Further a perusal of legal notice dated 27.02.2013 it could be seen that the said notice issued by Soloman & Company, Advocates for and on behalf of investors as well as the company against Mr. C Ramakrishna and Basavaraju. The notice alleges that the two Individuals failed to provide proportionate investment i.e. out of Rs. 9.5 crore, however paid only Rs. 5.37 crores as referred to in clause 3.2.5 and o....
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....ply by the respondents in the petition it could be ascertained as to the full facts of the matter but however for the purpose of due compliance of the factors to be taken into account as stipulated by the Apex court, this Bench is of the view that the matter covered by the petition cannot be referred to arbitration. It is also strange to see that the company and the investors have jointly issued the legal notice dated 22.02.2013 and whereas the company and the directors nominated by the investors along with its statutory auditors are parties in the said company petition and the relief claimed in the company petition cannot be referred to arbitration on a dispute raised by investors in terms of notice dated 22.02.2013. The subject matter of the petition relates to rights of members and relief in pursuance of statutory provisions as provided for in sections 397 to 403 of the Companies Act, 1956 and the same cannot be construed as matters covered by scope of arbitration agreement. However the scope of the said section as laid down by various courts makes clear the distinction between the statutory power and terms of any mutual arrangement by an agreement. It is well settled law that p....
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....en why necessary steps have not been taken to file application at the earliest? Notwithstanding the above, the respondents to this application may file counter within a period of three weeks and serve copies on the other side. The CA No. 1/2013 is posted on 21.11.2013 at 10.30 AM." 18. However the said application was permitted to be withdrawn by this Bench on 21.11.2013, Though it could be said that the respondents have not filed any counter however filed only section 8 application during November 2013, thereby they have complied with the requirements of section 8 of the Arbitration and Conciliation Act. In this regard, this Bench is of the view that having issued a purported legal notice in February 2013, by the said applicant as per Exhibit R3 no plausible explanation was offered for their action of filing section 8 Application in November 2013 and the applicants have not approached this Bench with clean hands. Therefore the action of not filing counter not having been explained, the filing of application u/s.8 cannot be taken as bonafide one is nothing but to cover up the unexplained delay in filing 1st statement to the petition. Hence the applicant cannot be said to have acte....
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....2 to 7 from whom no reliefs can be given. Para 11. That it is therefore clear that all the disputes raised and the reliefs asked are based out of a breach of the shareholders agreement and the Articles of Association and all the issues that have been raised are squarely covered under the shareholders agreement and the Articles of Association which provides that in case of any dispute, Arbitration would be the route for dispute resolution." 20. In response to that, the counsel for the respondent herein cited many judgments and have also made submission as briefly set out herein above and in particular stated that prior to filing of CA No.3/2013 in November 2013, the applicant had filed CA No. 1/2013 and this Bench passed an order on 16.09.2013 and observed that 'the respondents have filed an application being CA No. 1/2013 under section 8 of the Arbitration and Conciliation Act, 1996 praying this Bench to refer the above company petition to arbitration in terms of the arbitration agreement. Along with the application, no documents have been filed in the registry. However, the counsel filed certain documents across the bar today when the application was taken up for admission.....
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....ed in the petition are not arbitrable and the written submission of the relevant para is extracted hereunder: "Substance of Dispute: (i) The respondents/petitioners have raised various issues and sought various reliefs in the company petition which are neither part of the arbitration agreement nor are they arbitrable, moreover some of the reliefs sought for also against respondents 3 to 8 who are not parties to the arbitration agreement. (a) Section 237 invoked in C.P - page 4 of counter 10 CA/3/2013. (b) Cancellation of shares - C.P pg 10, para 15(i) onwards, para 15(iii) share application pending allotment, para 15 (i) to (iv). (c) Fraud & Siphoning of funds - C.P pg 11, para (iii) & (iv). (d) Statutory Auditor (8th respondent) collusion - Cp pg 11, para (iv). (e) P1L has been filed by 3rd party - C.P pg 12, para 18, and pg 236 of C.P typedset. (f) Illegal sale of property to public by way of advertisement to public to buy property without approval from local/Govt authority - C.P pg 13, para 19 to 21. (g) Removal as director - C.P pg 13, 14 para 21 (h) Investor complainant - pg 285 C.P typedset (i) No receipt of notices u/s.171 -C.P para 23, pg 15. (j) Ann....
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....ntained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this act, become or be void, as a case may be." 24. In view of the mandatory provisions of the Act the question of relying upon the clauses of the AOA and making any reference to arbitrator in view of existence of arbitration clause for answering the disputes raised by members touching upon oppression and mismanagement does not arise at all. The oppression complained by the petitioners, prima facie would be against the acts of omission and commission done by the directors and which are continuing and affect the rights of the petitioners whereas the agreement is inter se the petitioners or other members of the company along with the company being the party to the said agreement. The acts of omission and commission of the directors of the company cannot be construed as any breach of the agreement since the do's and don'ts of the directors responsibility has not been detailed out in the said agreement. Assuming for the purpose of understanding this aspect if any agreement provides for certain authority to the directors in an agreement and ....