1971 (6) TMI 56 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of the arbitration agreement and terms of settlement.
2. Locus standi of the shareholders to intervene.
3. Powers and functions of the Special Officer.
4. Compliance with procedural requirements under the Arbitration Act, 1940.
5. Validity of signatures on the terms of settlement.

Issue-wise Detailed Analysis:

1. Validity of the Arbitration Agreement and Terms of Settlement:
The court examined the arbitration agreement dated July 31, 1971, annexed to the terms of settlement. It was noted that the agreement stipulated that all interim orders, including the appointment of joint receivers, would stand vacated. The joint receivers were to hand over possession of the company's assets to a Special Officer appointed by a prior court order. However, the court found that the terms of settlement were not properly signed by all necessary parties, and there was no petition before the court to refer the matters in suit to arbitration as required by Section 21 of the Arbitration Act, 1940. Consequently, the terms of settlement were rejected.

2. Locus Standi of the Shareholders to Intervene:
The court addressed the objections raised by Mr. Deb on behalf of some shareholders of the defendant company. Mr. Deb argued that the shareholders had a significant interest in the company's affairs due to the absence of directors and the alleged collusion among certain parties. The court acknowledged that the shareholders could legitimately intervene to protect their interests, especially when the company's management was under the control of a Special Officer appointed by the court. The court granted leave to the shareholders to intervene in the matter.

3. Powers and Functions of the Special Officer:
The court discussed the role and powers of the Special Officer, noting that such appointments are made to prevent deadlocks in the company's management. The Special Officer's powers must be exercised under the supervision of the court and should aim to protect the company's interests. The court emphasized that the Special Officer should seek directions from the court before taking any controversial steps. The court found that the Special Officer in this case was attempting to gain full control over the company without proper court sanction, which was unacceptable.

4. Compliance with Procedural Requirements under the Arbitration Act, 1940:
The court highlighted the procedural requirements under Section 21 of the Arbitration Act, 1940, which mandates a written application to refer matters to arbitration. The court noted that no such petition had been filed in this case, and the attempt to present a petition during the proceedings was not entertained. The court held that the terms of settlement could not be filed without complying with the procedural rules.

5. Validity of Signatures on the Terms of Settlement:
The court examined the signatures on the terms of settlement and found several issues. One partner of the plaintiff firm signed the terms, but Mr. Deb argued that both partners should have signed, citing Section 19(2)(c) of the Partnership Act, 1932. The court rejected this argument, stating that the provision only relates to the implied powers of partners and does not prohibit one partner from signing on behalf of the firm in referring a dispute to arbitration. However, the court upheld the objection regarding the capacity in which B.B. Sinha signed the terms, noting that it was not properly indicated. The court concluded that the signatures on the terms of settlement were not valid, further justifying the rejection of the terms.

Conclusion:
The court rejected the terms of settlement and the arbitration agreement due to procedural non-compliance, improper signatures, and the need for the Special Officer to seek court directions before taking significant actions. The shareholders were granted leave to intervene, and the court emphasized the importance of protecting the company's interests through proper judicial oversight. There was no order as to costs.