1996 (6) TMI 351 - HC - Indian Laws

Summary

Issues Involved:
1. Applicability of Section 34 of the Arbitration Act, 1940, in winding up proceedings.
2. Whether stay should be granted under Section 34 of the Arbitration Act, 1940, in the facts and circumstances of the case.
3. Existence of a bona fide dispute for arbitration.
4. Timeliness and readiness of the party seeking arbitration.
5. Nature and scope of winding up proceedings versus arbitration proceedings.

Detailed Analysis:

1. Applicability of Section 34 of the Arbitration Act, 1940, in Winding Up Proceedings:
The primary issue is whether Section 34 of the Arbitration Act, 1940, can be invoked to stay winding up proceedings. Section 34 states that any party to an arbitration agreement may apply for a stay of legal proceedings if those proceedings are in respect of any matter agreed to be referred to arbitration. The court examined the arbitration clause in the lease agreement, which broadly covered "all disputes, differences, claims and questions" related to the agreement.

2. Whether Stay Should Be Granted Under Section 34 of the Arbitration Act, 1940:
The petitioner argued that winding up petitions cannot be stayed merely because the debts arose from a contract with an arbitration clause. The right to apply for winding up is statutory, not contractual. The court noted that the discretion to stay proceedings must be exercised based on the totality of facts and circumstances, considering the conduct of the parties and the motive behind the stay application. The court referenced several judgments, including Hind Mercantile Corporation Pvt. Ltd. v. J. H. Rayner and Co. Ltd. and Trilok Chand Jain v. Swastika Strips (P.) Ltd., which support that winding up petitions are a statutory right and not subject to arbitration clauses.

3. Existence of a Bona Fide Dispute for Arbitration:
The court emphasized that for an arbitration clause to be enforced, there must be a bona fide dispute. In this case, the company acknowledged its liability and made part payments, with no specific disputes raised in the affidavit-in-opposition to the winding up petition. Citing Union of India v. Birla Cotton Spinning and Weaving Mills Ltd., the court reiterated that the absence of a dispute precludes the possibility of arbitration.

4. Timeliness and Readiness of the Party Seeking Arbitration:
The company filed its application under Section 34 almost nine months after the winding up petition was instituted, which was deemed untimely. The court highlighted that an application for stay must be made before filing a written statement or taking any other steps in the proceedings, as per Section 34. The company's delay and lack of readiness to proceed with arbitration further weakened its case.

5. Nature and Scope of Winding Up Proceedings versus Arbitration Proceedings:
The court distinguished between winding up proceedings, which are statutory and involve the liquidation of the company, and arbitration, which is a contractual remedy for disputes. Citing Anderson Wright Ltd. v. Moran and Co., the court noted that winding up petitions are not meant for debt recovery but for the equitable distribution of the company's assets among creditors. The court also referenced the Punjab and Haryana High Court's decision in William Jacks and Co. (India) Ltd. v. Saraswati Industrial Syndicate Ltd., which held that winding up proceedings are of a different jurisdiction than arbitration.

Conclusion:
The court concluded that the conditions for granting a stay under Section 34 of the Arbitration Act were not met. There was no bona fide dispute, the application for stay was untimely, and the nature of winding up proceedings differed fundamentally from arbitration. Consequently, the application under Section 34 was dismissed, and the winding up petition was allowed to proceed. There was no order as to costs, and a stay was refused.