TaxTMI 
TaxTMI 
2023 (7) TMI 1607
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed Order dated 15.09.2020, passed in I.A.44/KOB/2020 in CP/02/KOB/2020 whereby and where under the NCLT (National Company Law Tribunal, Kochi Bench, Kochi) has dismissed the Application filed by the Applicant/Appellant/`M/s. Indus Motor Company Private Limited', for referring the matter to an Arbitral Tribunal, the Appellants preferred this Appeal under Section 421 of the Companies Act, 2013 (hereinafter referred to as `The Act'). The NCLT, while dismissing I.A. No.44/2020 has observed as follows: "43. In this case, the CP is filed for oppression and mismanagement in the Company. In addition to that serious fraud has also been alleged by the petitioners. Since those questions cannot be considered by an Arbitral Tribunal, the relief prayed for reference to an Arbitral Tribunal cannot be accepted. 44. In my opinion, it would be difficult to give an interpretation to Section 8 under which bifurcation of the cause of action that is to say the subject matter of the CP or in some cases bifurcation of the CP between the parties who are parties to the arbitration agreement and others is possible. This would be laying down a totally new procedure not contemplated under the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ibunal is competent to rule on its own jurisdiction and that there is no sufficient cause to divest the Arbitral Tribunal of its powers. The Company Petition is nothing but a well disguised dressed up Petition and most of the allegations raised in the Company Petition are `barred by Limitation'. The Respondent have selectively picked up information from the Financial Statements of the first Appellant Company for a period of 10 years with baseless and false `Claims' only to give it a colour of a Petition under Sections 241 and 242 of the Act. It is contended that the Respondents seek relief in the nature of monetary compensation and indemnification, which are arbitral in nature. The Respondents have crystallised their `Claim' by quantifying losses to the tune of Rs. 62,88,86,800/-. * The Impugned Order is a non-Speaking Order as it refers to allegations of fraud, which is liable for punishment under Section 477 of the Act, without even identifying the instances of the alleged fraud. The Respondents are in breach of various Clauses of the MoU and therefore the Appellants have made a reference for Arbitration. It is submitted that in the event two parallel Proceedings continu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the allegations made by them are subject to adjudication by the Arbitration, have yet filed this Company Petition under Sections 241 & 242 of the Act. The second Appellant had invoked the Arbitration Clause under the MoU vide Notice dated 06.06.2020 and thereafter filed a Petition under Section 11 of the Arbitration and Conciliation Act, 1996 before the Hon'ble Kerala High Court seeking appointment of Arbitrator. The second Respondent challenged the said Petition and the objections of the Respondent to the Section 11 Petition are similar to the allegations made by the family group in the Company Petition before the NCLT. The Arbitration Petition AR No.59/2020 was allowed by the Hon'ble Kerala High Court vide Order dated 10.01.2023 appointing Mr. PS Sunil Advocate as the sole Arbitrator. It is submitted that the Appellants have filed a Caveat before the Hon'ble Supreme Court in relation to the Order dated 10.01.2023 of the Hon'ble Kerala High Court and that the Respondents have filed an SLP against the same Order. * Learned Counsel filed Supplementary Written Submissions stating that the Hon'ble Kerala High Court has dismissed the Review Petition, filed by one P.A. Ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3) 5 SCC 531). o 'Bialetti Industries S.P.A.' Vs. 'Rachit Suresh Gangar'(2012 SCC OnLine CLB 133). o 'Inspire Educational Services Pvt. Ltd.' Vs. 'Triumphant Institute of Management Education Pvt. Ltd.'(2013 SCC OnLine CLB 9). o 'A. Ayyasamy' Vs. 'A. Paramasivam & Ors.'((2016) 10 SCC 386). o 'Rashid Raza' Vs. 'Sadaf Akhtar'((2019) 8 SCC 710). o 'Vidya Drolia & Ors.' Vs. 'Durga Trading Corp.'((2020) SCC OnLine SC 1018). o 'N.N. Global Mercantile Pvt. Ltd.' Vs. 'Indo Unique Flame Ltd.'(2021 SCC OnLine SC 13.). o 'Chloro Controls Ind.' Vs. 'Severn Trent Water Purification'((2013) 1 SCC 641). o 'Kotak Mahindra Bank' Vs. 'Sundaram Brake Lining Ltd.'(2008 SCC OnLine Mad 519). o 'Sangramsingh P. Gaekwad' Vs. 'Shantadevi P. Gaekwad'((2005) 11 SCC 314). o 'Needle Industries (India) Ltd.' Vs. 'Needle Industries Newey (India) Holding Ltd.'((1981) 2 SCC 333). o 'Shanti Prasad Jain' Vs. 'Kalinga Tubes Ltd.'((1965) 2 SCR 720). o 'V.M. Rao' Vs. 'Rajeswari Ramakrishnan'(1985 SCC OnLine Mad 151). o 'V.J. Thomas Vettom' Vs. 'Kuttanad Rubber Co. Ltd.'(1982 SCC OnLine Ker 261). 3. Su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Industries (India) Ltd.'(MANU/SC/0401/1999). o 'Sudarshan Chopra & Ors.' Vs. 'Company Law Board & Ors.'(MANU/PH/0021/2004). o 'Sporting Pastime India Limited & Ors.' Vs. 'Kasthuri & Sons. Limited'(MANU/TN/2099/2006). o 'Bennett Coleman & Co.' Vs. 'Union of India & Ors.'(MANU/MH/0054/1977). o 'Dhananjay Mishra' Vs. 'Dynatron Services Private Limited & Ors.'(Comp. App. (AT) No.389/2019). o 'A. Ayyasamy' Vs. 'A Paramasivam & Ors.'(MANU/SC/1179/2016). o 'Rashid Raza' Vs. 'Safad Aktar'(MANU/SC/1249/2019). o 'Avitel Post Studioz Limited & Ors.' Vs. 'HSBC PI Holdings Mauritius Limited and Ors.'(MANU/SC/0601/2020). o 'Sukanya Holdings Pvt. Ltd.' Vs. 'Jayesh H. Pandya & Ors.'(MANU/SC/0310/2003). o 'Indore Development Authority' Vs. 'Manohar Lal & Ors. Etc.'(SLP (C) No.9036-9038/2016). o 'Hemant Kumar' Vs. 'State of Himachal Pradesh & Ors.'(2020 SCC OnLine HP 1707). o 'Calcom Cement India Limited & Anr.' Vs. 'Binod Kumar Bawari & Ors.'(2016 Indlaw GUW 632). o 'P. Anand Gajapathi Raju & Ors.' Vs. 'P.V.G Raju (Dead) & Ors.'(2000 (2) Arb. LR 204 (SC)). o 'Emaar MGF Land Limited'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... granted by the Hon'ble Supreme Court in SLP (C) 3515/2020 has no bearing on the present proceedings. Assessment: 4. The Hon'ble Supreme Court in the matter of `Ajit Nair' Vs. `Pullikkal Veetil Abdul Wahab & Ors'(SLP (C) No.3515/2023). dated 24.04.2023, has passed the following Orders: "IA No. 65875/2023 In our order dated 28.02.2023, while issuing notice and staying the operation of the impugned judgment/order dated 10.01.2023 passed by the High Court, we had clarified that we had not stayed the proceedings pending before the National Company Law Tribunal (NCLT). In other words, the NCLT or the National Company Law Appellate Tribunal (NCLAT), if they so desire, and deem appropriate can proceed with the matter/appeal. We make it clear that we have not expressed any opinion either way. The application is accordingly disposed of." 5. This Tribunal heard the Parties on 19.07.2023 in Comp. App. (AT) Nos. 87/2020 & 204/2020. It is the case of the Learned Counsel for the Appellant that since the Hon'ble Supreme Court has stayed the Order of the Hon'ble Kerala High Court in AR 59/2020 and therefore this matter ought to be adjourned sine die, is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 241 & 242 of the Act are reproduced as hereunder: "241. (1) Any member of a company who complains that- (a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or (b) the 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 the Board of Directors, or manager, 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 its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter. (2) The Central Government, if it is of the opinion that the affairs of the compa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....manager or any of the directors of the company; (i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims; (j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h); (k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct; (l) imposition of costs as may be deemed fit by the Tribunal; (m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub-section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal. (4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts). (ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement. (iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal. 35. The Arbitral Tribunals are private fora chosen voluntarily b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....udgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary.) 38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being 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 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....attempted to do so would be useless." 42. The distinction between disputes which are capable of being decided by arbitration, and those which are not, is brought out in three decisions of this Court. In Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. [(1999) 5 SCC 688] this Court held: (SCC pp. 689-90, paras 4-5) "4. Sub-section (1) of Section 8 provides that the judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide. 5. The claim in a petition for winding up is not for 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dispute. Be it seen that the claim in the Company Petition pending adjudication before the Tribunal relates to matters arising out of the two Memorandums of Understanding. Disputes raised by the Respondent No. 1 in the Company Petition are in regard to alleged acts of oppression and mismanagement. It is alleged by Respondent No. 1 in the Company Petition that the Appellant has neither transferred the assets of 'Yeoman Marine Services Pvt. Ltd' to the newly formed company as provided in Second MOU nor conducted the business in accordance with the First MOU but has also allotted 51 per cent equity shares in the Company to himself and his wife thereby assuming complete management control to the exclusion of Respondent No. 1 seriously prejudicing its interests. From the relief clause in the Company Petition, it emerges that Respondent No. 1 seeks relief under Section 241 to 244 r/w 246 of the Companies Act, 2013 to bring an end to the acts of oppression and mismanagement perpetrated by the Appellant besides directing joint management and control of the company by Respondent No.1 and the Appellant. Petitioner (Respondent No. 1) also sought the relief of induction of two Nominee Director....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dopted by the Tribunal." (Emphasis Supplied) 15. The extant controversy in this Appeal is regarding the arbitrability of the grievances raised in the Company Petition. It is the case of the Appellant that the Company Petition is nothing but a well disguised and a `dressed up' Petition only to give it a colour of a Petition under Sections 241 and 242 of the Act. It was vehemently argued that mere allegations of fraud will not make a dispute fall outside the ambit of an Arbitration Clause and that all disputes arising out of the breach of Clauses of the 2007 MoU should be referred to and decided by Arbitration and that there should not be any bifurcation. A bare reading of the reliefs sought for in the Company Petition shows that the `Acts' complained of in the Company Petition include misutilization of funds, non-service of Notice on minority shareholder, conducting related party transactions without Board approval, diversion of funds, unauthorised use of intellectual property and are not limited to any monetary compensation or assessment of damages but includes specific grievances based on which a direction was sought, for appointment of Forensic Auditor, appointment of an In....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this part there are eight chapters. Chapter I contains general provisions with regard to corporate management and administration of the companies such as registered office, registers of members and debenture-holders, annual returns, meetings and proceedings, accounts, audit, investigation, etc.; Chapter II, which includes section 255, deals with directors, their qualification, disqualification and remuneration, meetings of the board, board's powers, procedure where directors are interested, etc.; Chapter III deals with managing agents, their appointment, remuneration, restrictions on their powers, etc.; Chapter IV deals with secretaries and treasurers; Chapter IV-A deals with powers of the Central Government to remove managerial personnel from office on the recommendation of the Tribunal; Chapter V deals with arbitration, compromises, arrangements and reconstructions; Chapter VI, which includes sections 397 to 409, deals with prevention of oppression and mismanagement; Chapter VII deals with constitution and powers of advisory committee and Chapter VIII contains miscellaneous provisions. It will thus be seen that section 255 on which substantially the entire argument of Mr. S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s while there are no limitations or restrictions on the court's powers to pass orders that may be required for bringing to an end the oppression or mismanagement complained of and to prevent further oppression or mismanagement in future or to see that the affairs of the company are not being conducted in a manner prejudicial to public interest. In other words, whenever the legislature wanted to do so it has made a distinction between powers conferred on the Government (vide section 408) and powers conferred on the court (vide section 402) while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the court's powers; if the legislature had desired that the court's powers while acting under section 397 or 398 read with section 402 should be exercised subject to or in consonance with the other provisions of the Act it would have said so. Moreover, the topics or subjects dealt with by sections 397 and 398 are such that it becomes impossible t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. We are, therefore, unable to accept Mr. Sen's contention that the court's powers under section 398 read with section 402 should be read as subject to the other provision of the Act dealing with normal corporate management or that the court's orders and directions issued thereunder must be in consonance with the other provisions of the Act." (Emphasis Supplied) 17. At this juncture, we do not find it apposite to adjudicate as to whether the Parties to the Company Petition are different from the Parties to the 2007 MoU. We are of the earnest view that our observations are only with respect to as to whether the relief sought for in the Company Petition are arbitrable. The Hon'ble Supreme Court in a catena of Judgement specifically in `Booz - Allen and Hamilton Inc.' (Supra), h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng out of a trust deed and the Trust Act." (Emphasis Supplied) 18. An Action in persona refers to action determining the rights and interests of the parties themselves in the subject matter of the case, traditionally, all disputes relating to rights in persona are considered to be amenable to Arbitration and all disputes relating to rights in rem are adjudicated by Courts and Tribunals, though however not a completely rigid rule. 19. NCLT observed that there were substantial allegations of fraud and has dismissed the Petition seeking to refer the matter to Arbitration, holding that the relief sought for cannot be bifurcated and that the case involves complex questions of law and facts which require a deeper examination of the matter. The Hon'ble Apex Court in a catena of Judgements has held that certain categories of cases stand excluded from the purview of private Arbitration, which includes `Insolvency and winding-up Petitions'. When the matter relates to allegations of fraud, such a situation can only be settled in a Court through detailed evidence to be adduced by both parties. We reiterate that we have not made any observations regarding the `existence of fraud' but h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....: 24. Aggrieved by the Impugned Order dated 05.06.2020 passed by the NCLT (National Company Law Tribunal, Kochi Bench, Ernakulam) in I.A. No.64/KOB/2020 in CP/02/KOB/2020, the Appellant preferred this Appeal, dissatisfied by the directions given by the NCLT at the interim stage which read as follows: "I. While considering the present situation to meet the ends of justice, this Tribunal allows the appointment of an Independent Forensic Auditor to complete the auditing work within 60 days from the date of appointment of auditor by this Bench. II. It is also directed to constitute an audit committee consisting of two directors from the Petitioner's side and two from the Respondent's side other than Respondent No.2 for helping and co-operating in completing the independent audit. III. The cost of the forensic auditor should be borne by both parties equally. It is also directed both the parties to suggest the list of persons to perform as an Independent Forensic Auditor before 19.06.2020." 25. It is submitted that the Impugned Order grants relief which are in derogation of the powers conferred under Section 242(4) of the Act and violates the principle of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icial to public interest and interests of the Company and have acted oppressively ;. d) Direct Majority Shareholders to recompense the Company for all losses suffered by the Company. along with an interest calculated thereon at the rate of 12% (twelve percent), as a consequence of the fraudulent, unlawful and wrongful uets or omission of the Majority Shareholders, under Section 242 (2) of the Companies Act, 2013; e) In alternative, order reduction in the share capital of the Company to the extent of the shareholding of the Majority Shareholders under Section 242(2)(c) of the Companies Act. 2013; Disqualification of Majority Shareholders as promoters of the Company and/or from voting in the Company as shareholders of the Company; Document 2 145 Direct recovery of undue gains made by the Executive Management of the. Company, including the management fee paid: to. the Executive Management of the along with an interest calculated thereon at the rate of 12% (twelve percent) and payment thereof to the Company under Section 242 (2) (i) of the Companies Act, 2013 ; h) Remove Majority Shareholders as director of the Company under Section 242 (2) (h) of the Compan....