2014 (2) TMI 1317 - HC - Indian Laws

Arbitration and conciliation - winding up petition - Held that - As in Supreme Court in Amalgamated Commercial Trades (P) Ltd Vs.Krishnaswami(A.C.K.) 1965 (1) TMI 16 - SUPREME COURT OF INDIA) wherein it was held that a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company, opined that there is no overwhelming public interest to continue the winding up proceedings and deny the opportunity to the parties to settle their dispute through arbitration. The learned single Judge under the facts and circumstances referred the dispute to arbitration in view of Clause- 16 of arbitration agreement between the parties. Interestingly, the learned single Judge has referred to the judgment in Haryana Telecom Ltd (1 supra), but did not explain as to how an order allowing the application under Section 8 of the Arbitration Act could be justified in the face of the dicta laid down by the Supreme Court in the said case. It is one thing to dismiss the Company Petition on its own merits if the Court feels that there is a bona fide dispute, while it is quite another thing to refer the parties to arbitration on an application made under Section 8 of the Arbitration Act, merely because the debt is disputed. In the face of the authoritative pronouncements of the Apex Court as referred above, the High Court while dealing with a Company Petition filed under the Companies Act cannot entertain an application under Section 8 of the Arbitration Act and compel the unwilling party to submit himself to the jurisdiction of the Arbitrator.

Summary

Issues:
Application under Section 8 of the Arbitration Act for reference of disputes to arbitration in a Company Petition.

Analysis:
The application was filed under Section 8 of the Arbitration and Conciliation Act, 1996, seeking reference of disputes to arbitration. The respondent, a company, claimed that the petitioner failed to fulfill obligations, causing substantial loss, and invoked Section 8 for arbitration. The petitioner, in response, raised a preliminary objection to the maintainability of the application, arguing that the High Court has exclusive jurisdiction for winding up proceedings under the Companies Act, and hence, the application under Section 8 is not maintainable in a Company Petition.

The Court referred to the provisions of Section 8 of the Arbitration Act, emphasizing that parties to an agreement with an arbitration clause should resolve disputes through arbitration. However, it noted that the Companies Act confers exclusive jurisdiction on the High Court for ordering winding up, making it the only forum for such cases. Citing relevant case laws, the Court highlighted that matters related to winding up, insolvency, and certain other categories are non-arbitrable and reserved for public fora. The judgments of the Supreme Court were referenced to support the position that disputes like winding up petitions are not suitable for arbitration and should be adjudicated by the High Court.

The Court discussed the judgment in a similar case from the Punjab and Haryana High Court, where the dispute was referred to arbitration based on an arbitration agreement. However, it clarified that dismissing a Company Petition due to a bona fide dispute is different from referring parties to arbitration under Section 8 of the Arbitration Act. Ultimately, the Court held that in the context of Company Petitions under the Companies Act, applications under Section 8 of the Arbitration Act cannot be entertained, as compelling unwilling parties to arbitration goes against established legal principles. Consequently, the Company Application was dismissed, affirming the exclusive jurisdiction of the High Court in winding up matters and non-maintainability of arbitration applications in Company Petitions.