1999 (1) TMI 534 - Board - Companies Law

Summary

Issues involved:
The issues involved in this judgment are the application of Section 397/398 of the Companies Act, 1956, the invocation of Section 8 of the Arbitration and Conciliation Act, 1996, and the determination of whether disputes arising from a sponsorship agreement should be referred to arbitration.

Section 397/398 Application:
The petition was filed under Section 397/398 of the Companies Act, 1956, regarding G.R. Solvents and Allied Industries Limited. The respondents applied under Section 8 of the Arbitration Act, stating that the allegations in the petition stem from a sponsorship agreement between the petitioner and respondent companies, which includes an arbitration clause. The petitioner's failure to comply with the agreement's terms led to disputes, including failure to amend articles, appoint a nominee, and provide necessary information, all covered by the arbitration clause.

Invocation of Section 8 of the Arbitration Act:
The respondents argued that the matter should be referred to arbitration as per Section 8 of the Arbitration Act, as the disputes directly relate to the sponsorship agreement. The petitioner had already initiated arbitration proceedings, and the respondents contended that the Company Law Board should not proceed with the petition due to ongoing arbitration and a separate suit filed by a co-investor.

Determining Referral to Arbitration:
The petitioner, a shareholder, asserted the right to file the petition under Section 399 despite the existence of the sponsorship agreement with an arbitration clause. The petitioner sought relief against acts of oppression and mismanagement, distinct from enforcing the sponsorship agreement. However, the core allegations in the petition, such as failure to amend articles, appoint a nominee, and siphoning off funds, directly stemmed from the sponsorship agreement, necessitating arbitration.

Judgment:
The Company Law Board considered the arguments and found that most allegations in the petition arose from disputes under the sponsorship agreement with an arbitration clause. Despite the petitioner seeking relief beyond the agreement's terms, the foundation of the petition lay in the agreement. Therefore, in accordance with Section 8 of the Arbitration Act, which mandates referral of disputes covered by arbitration agreements, the Board decided to refer the matter to arbitration. The Board noted that the petitioner had already initiated arbitration proceedings, emphasizing the obligation to arbitrate disputes arising from the sponsorship agreement.