2004 (3) TMI 806 - Board - Companies Law

Summary

Issues Involved:
1. Allegations of oppression and mismanagement in the affairs of the Company.
2. Application under Section 8 of the Arbitration and Conciliation Act, 1996 to refer parties to arbitration.
3. Jurisdiction of Company Law Board (CLB) vs. Arbitral Tribunal.
4. Validity of actions taken by the Company without proper notice to the petitioner.
5. Statutory violations by the Company.

Issue-wise Detailed Analysis:

1. Allegations of Oppression and Mismanagement:
The petitioner alleged acts of oppression and mismanagement by the Company and its respondents, including the dilution of the petitioner's majority shareholding from 69.30% to 26.14% without proper notice, the issuance of additional shares, non-issuance of notices for Board and general meetings, reduction of share capital, and removal of directors nominated by the petitioner. These grievances were claimed to be in violation of the Companies Act, 1956 and the Articles of Association of the Company.

2. Application under Section 8 of the Arbitration and Conciliation Act, 1996:
The respondents filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, arguing that the disputes raised in the Company Petition arose out of or in connection with the Joint Venture Agreement (JVA) dated 02.11.1995, which contained an arbitration clause (Clause 33) mandating arbitration under the Indo-German Chamber of Commerce rules. They contended that all issues in the Company Petition should be referred to arbitration as per the JVA.

3. Jurisdiction of Company Law Board (CLB) vs. Arbitral Tribunal:
The petitioner argued that the grievances were based on statutory violations and sought to enforce statutory remedies under the Companies Act, 1956, which could not be referred to arbitration. They cited several cases to support that the CLB had exclusive jurisdiction to remedy such grievances. The respondents, however, argued that the arbitration clause in the JVA mandated that disputes be resolved by arbitration, including those involving allegations of oppression and mismanagement.

4. Validity of Actions Taken by the Company Without Proper Notice:
The petitioner highlighted several instances where the Company took significant actions without proper notice, including the issuance of 18,50,000 equity shares to the fourth respondent, the reduction and subsequent increase of share capital, removal of nominee directors, and conducting meetings without proper notice. These actions were claimed to be in violation of statutory provisions and the Articles of Association.

5. Statutory Violations by the Company:
The petitioner alleged multiple statutory violations by the Company, including improper holding of Annual General Meetings (AGMs), non-issuance of notices, defective notices, non-maintenance of proper minutes, falsification of financial statements, and improper conduct of Board meetings. These violations were claimed to directly affect the rights and benefits of shareholders under the Companies Act, 1956.

Judgment Summary:

The CLB considered the arguments from both sides. It was noted that the grievances of the petitioner were directly related to the rights of shareholders under the Companies Act and the Articles of Association, and could be adjudicated without reference to the JVA. The CLB referenced its own decision in Limrose Engineering, which stated that matters under Sections 397/398 of the Act could be arbitrable depending on the facts of each case. However, it emphasized that if the allegations of oppression and mismanagement could be examined without reference to the arbitration agreement, the matter should not be referred to arbitration.

The CLB concluded that the petitioner was enforcing statutory rights under the Companies Act, which could not be ousted by an arbitration agreement. The reliefs sought by the petitioner were available only under Sections 397 and 398 read with Sections 402 and 403 of the Companies Act and could not be granted by an arbitrator. The statutory jurisdiction of the CLB could not be ousted even by the consent of the parties.

Therefore, the application to refer the parties to arbitration was rejected. The respondents were directed to file a counter by 30.04.2004, and the rejoinder was to be filed by 15.05.2004. The Company Petition was scheduled for hearing on 21.05.2004.