2016 (4) TMI 1300 - HC - Companies Law

Application under Section 8 of Arbitration and Conciliation Act - Held that - Petitioner is invoking a statutory remedy which is in addition to the contractual remedy. Moreover, under Section 397(2)(b) of the Companies Act, 1956, Company Law Board has to come to a conclusion that a case for winding up is made out, prior to granting any relief. In Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd, (1999 (7) TMI 545 - SUPREME COURT OF INDIA) Supreme Court has held that arbitration clause is not attracted to winding up proceedings. It is also settled law that under Sections 397 and 398 of the Companies Act, relief can be granted even contrary to any Articles of Association, which an Arbitrator cannot do as he is a creature of the contract i.e. Articles of Association. Consequently, the present writ petition being bereft of merit is dismissed along with the applications.

Summary

Issues:
Challenge to order of Company Law Board dismissing application under Section 8 of Arbitration and Conciliation Act, 1996.

Analysis:
The High Court judgment dealt with the challenge to an order passed by the Company Law Board (CLB) dismissing a petitioners' application under Section 8 of the Arbitration and Conciliation Act, 1996. The petitioners contended that as per the Articles of Association of the company, all disputes were to be referred to arbitration. They argued that if an arbitrator could settle disputes, then matters under Sections 397 and 398 of the Companies Act should also be referred to arbitration. However, the Court observed that the petitioner was invoking a statutory remedy in addition to the contractual remedy. It was noted that under Section 397(2)(b) of the Companies Act, the CLB must first determine if a case for winding up is made out before granting any relief. The Court cited the case of Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd, where the Supreme Court held that arbitration clauses do not apply to winding up proceedings.

Furthermore, the judgment established that relief under Sections 397 and 398 of the Companies Act can be granted even if it contradicts the Articles of Association, which an arbitrator cannot do as the arbitrator's authority stems from the contract, i.e., the Articles of Association. Consequently, the Court dismissed the writ petition as lacking merit, along with the applications. The judgment clarified the distinction between statutory remedies and contractual remedies in the context of arbitration and winding up proceedings under the Companies Act, emphasizing the limitations of arbitration clauses in such situations.