1999 (1) TMI 540 - HC - Indian Laws

Summary

Issues Involved:
1. Jurisdiction of the company court versus arbitration under section 8 of the Arbitration and Conciliation Act, 1996.
2. Applicability of the arbitration clause in the context of a winding-up petition.
3. Validity of the appellant's application for dismissal of the winding-up petition based on the arbitration agreement.
4. Examination of precedents related to arbitration and company court jurisdiction.

Detailed Analysis:

1. Jurisdiction of the Company Court versus Arbitration under Section 8 of the Arbitration and Conciliation Act, 1996:
The appellant argued that the company court does not have jurisdiction to adjudicate the dispute due to the arbitration agreement, invoking section 8 of the 1996 Act. The court, however, held that the power to pass a winding-up order is vested solely with the company court and cannot be exercised by an arbitrator. Section 8 applies only if the action before the judicial authority is the subject-matter of an arbitration agreement. Since the winding-up petition under sections 433, 434, and 439 of the Companies Act, 1956, is not an action involving a dispute subject to arbitration, section 8 is inapplicable.

2. Applicability of the Arbitration Clause in the Context of a Winding-Up Petition:
The arbitration clause in the purchase order stated that any dispute between the parties should be referred to arbitration. However, the court noted that there was no dispute regarding the appellant's liability to pay the amount due to the respondent. The letters exchanged between the parties and the minutes of the meeting indicated that the appellant admitted its liability. Therefore, the arbitration clause could not be invoked, and the company court's jurisdiction was not ousted by the arbitration agreement.

3. Validity of the Appellant's Application for Dismissal of the Winding-Up Petition Based on the Arbitration Agreement:
The appellant filed an application under section 8 of the 1996 Act for dismissal of the winding-up petition, arguing that the company court should refer the matter to arbitration. The court dismissed this application, stating that the winding-up petition is a statutory remedy for the benefit of all creditors and stakeholders, not just the parties to the arbitration agreement. The existence of an arbitration clause does not automatically stay the proceedings or oust the jurisdiction of the company court.

4. Examination of Precedents Related to Arbitration and Company Court Jurisdiction:
The court analyzed various precedents, including Goetze India Ltd. v. Pure Drinks (New Delhi) Ltd. (No. 1) and Tirlok Chand Jain v. Swastika Strips (P.) Ltd., which established that an arbitration clause does not oust the jurisdiction of the company court in winding-up proceedings. The court emphasized that it is within the company court's discretion to decide whether to stay proceedings based on the arbitration clause, considering factors like the bona fides of the parties and the nature of the dispute.

Conclusion:
The court concluded that the arbitration clause does not automatically oust the jurisdiction of the company court. The appellant's unequivocal admission of liability negated the need for arbitration. The appeal was dismissed, and the order of the learned company judge was upheld, with costs of Rs. 5,000 imposed on the appellant.