2010 (10) TMI 913 - Board - Companies Law

Summary

Issues Involved:
1. Whether the dispute raised in the company petition is liable to be referred to arbitration.
2. Whether the proposed rights issue by the respondent company is in violation of the articles of association and the Companies Act, 1956.

Detailed Analysis:

Issue 1: Arbitration Clause Invocation
The first issue for consideration is whether the dispute raised in the company petition should be referred to arbitration by invoking clause 16 in the agreement dated April 29, 2009. The petitioners argue that their statutory rights under the Companies Act are being violated, alleging acts of oppression and mismanagement by the respondents. They contend that not all parties to the company petition are bound by the arbitration agreement. The company, however, asserts that the petitioners are relying on the agreement, which includes an arbitration clause, thus barring the company petition under section 8(1) of the Arbitration and Conciliation Act, 1996. The Board concluded that since not all parties to the company petition are parties to the arbitration agreement, and the petition includes issues beyond the scope of the agreement, the matter cannot be referred to arbitration. The application for arbitration was dismissed, referencing the precedent set in Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandya.

Issue 2: Rights Issue and Articles of Association
The second issue concerns the legality of the proposed rights issue by the respondent company. The petitioners argue that the rights issue violates clause 157A(e) of the articles of association, which requires the affirmative vote of petitioner No. 2 for any further issue of shares. The respondent company contends that clause 157A(e) is inconsistent with sections 81(1)(a) and 81(1A) of the Companies Act, 1956, and thus void under section 9(b) of the Companies Act. The Board examined whether clause 157A(e) conflicts with the Companies Act and concluded that it does. The clause was found to be repugnant to sections 81(1)(a) and 81(1A) and therefore void. Consequently, the petitioners' request to restrain the company from proceeding with the rights issue was denied.

Conclusion:
The interim injunction against the rights issue was vacated, allowing the respondent company to proceed with the rights issue as resolved in the board meeting on May 25, 2010. The order is subject to the final outcome of the company petition. The respondents were directed to file a counter within four weeks, and the company petition was adjourned to December 15, 2010.

This comprehensive analysis covers the key issues, legal arguments, and conclusions while preserving the original legal terminology and significant phrases from the judgment.