1998 (6) TMI 582 - Board - Companies Law

Summary

Issues Involved:
1. Whether the proceedings under sections 397 and 398 of the Companies Act, 1956, should be stayed pending arbitration.
2. Whether the arbitration agreement dated August 6, 1996, is applicable and enforceable in this context.
3. Whether the applicant has already submitted the first statement on the substance of the dispute, thus barring the application under Section 8 of the Arbitration and Conciliation Act, 1996.
4. The applicability of Section 5 of the Arbitration and Conciliation Act, 1996, in preventing judicial intervention.

Detailed Analysis:

Issue 1: Stay of Proceedings Pending Arbitration
The application by respondent No. 2 seeks to stay the proceedings under sections 397 and 398 of the Companies Act, 1956, initiated by the petitioner, pending arbitration. The petitioner alleges oppression and mismanagement in the affairs of the company. The key contention is whether the disputes raised in the main petition are substantially the same as those covered by the arbitration agreement dated August 6, 1996.

Issue 2: Applicability and Enforceability of the Arbitration Agreement
Respondent No. 2 argues that the arbitration clause in the agreement dated August 6, 1996, appoints Shri Amitav Kothari as the sole arbitrator to adjudicate the disputes. However, petitioner No. 1 contends that the agreement is not an arbitration agreement, and Amitav Kothari was intended to function only as a stakeholder or escrow agent. Petitioner No. 1 also asserts that the other parties to the agreement have not sought to enforce the arbitration clause, and the subject matter is not suitable for arbitration.

Issue 3: Submission of First Statement on the Substance of the Dispute
Petitioner No. 1 argues that respondent No. 2 has already submitted the first statement on the substance of the dispute through affidavits and other proceedings, thus barring the application under Section 8 of the Arbitration Act. Respondent No. 2 had raised preliminary objections and contested the merits of the case in various affidavits and interlocutory applications, which, according to the petitioner, constitutes a first statement on the substance of the dispute.

Issue 4: Applicability of Section 5 of the Arbitration and Conciliation Act, 1996
Respondent No. 2 relies on Section 5 of the Arbitration Act, which restricts judicial intervention in matters covered by an arbitration agreement. However, the court clarifies that Section 5 does not entirely bar judicial intervention but limits it to the extent provided within Part I of the Act. Section 8 specifically allows judicial authority to refer parties to arbitration if an application is made before submitting the first statement on the substance of the dispute.

Judgment Analysis:
The court, after considering the arguments and written notes submitted by both parties, concludes that respondent No. 2 had ample knowledge of the arbitration agreement from the outset and had engaged in proceedings without raising the arbitration issue for thirteen months. The court finds that respondent No. 2 has indeed submitted the first statement on the substance of the dispute through various affidavits and objections, thus making the current application under Section 8 unsustainable.

The court dismisses the application, stating that the proceedings under sections 397 and 398 of the Companies Act, 1956, cannot be stayed pending arbitration as the application was made long after the initiation of the main proceedings and after engaging on the merits of the case.

Conclusion:
The application to stay the proceedings pending arbitration is dismissed. The court directs that the main petition will be heard on the merits on specified dates, with respondents required to file their replies and rejoinders within stipulated timelines. No orders as to costs are made.