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2014 (9) TMI 1183 - Board - Companies LawReference to arbitration - dispute relating to and is in connection with the company - dispute revolves around the alleged allotment of shares alleged removal of directors etc which are covered in the shareholders agreement - whether the applicant has made out any case to refer the subject matter of the company petition to arbitration? - Section 8 of the Arbitration and Conciliation Act. Whether there is an arbitration agreement among the parties - Held that - The SHA dated 30.07.2008 having described the promoters as those persons who are listed out in Schedule I numbering into 12 individuals in the absence of the signature of the entire parties in the capacity as promoters the said document cannot be titled as agreement either under the Contract Act or under the Arbitration and Conciliation Act. Hence this criteria is not satisfied. Commonality of parties - Held that - The parties to the S.H.A are different from the parties to the Company petition and hence one of the ingredients of the requirements to be satisfied under section 8 has not been fulfilled in the facts of the matter herein and hence the question of referring the said matter to arbitration does not arise. Subject matter of dispute vis-a-vis agreement - Held that - The subject matter of the petition relates to rights of members and relief in pursuance of statutory provisions as provided for in sections 397 to 403 of the Companies Act 1956 and the same cannot be construed as matters covered by scope of arbitration agreement. However the scope of the said section as laid down by various courts makes clear the distinction between the statutory power and terms of any mutual arrangement by an agreement. It is well settled law that parties by mutual concern cannot be permitted to override the statutory provisions. Hence both factually and legally the subject matter of the company petition would not fall within the scope of arbitration agreement. Whether the applicant had filed the said application before submitting the 1st statement on the substance of the dispute? - Held that - This Bench is of the view that having issued a purported legal notice in February 2013 by the said applicant as per Exhibit R3 no plausible explanation was offered for their action of filing section 8 Application in November 2013 and the applicants have not approached this Bench with clean hands. Therefore the action of not filing counter not having been explained the filing of application u/s.8 cannot be taken as bonafide one is nothing but to cover up the unexplained delay in filing 1st statement to the petition. Hence the applicant cannot be said to have acted bonafidely on this aspect. Whether the reliefs sought in the petition are those that can be adjudicated and granted in Arbitration proceedings? - Held that - The relief sought in the petition cannot be adjudicated and cannot be granted through arbitration in view of the Mandatory Provisions Empowering Exclusive Jurisdiction to CLB for deciding such issues. The main point of the applicant is that the reliefs sought for in the CP are arbitrable in terms of SHA and the arbitration clause in the AOA. In this aspect it is well settled law that in a matter of oppression and mismanagement any arbitration clause in the articles of association a company shall not have any legal force and validity of enforcement in view of the provisions of section 9 of the Companies Act 1956 - In view of the mandatory provisions of the Act the question of relying upon the clauses of the AOA and making any reference to arbitrator in view of existence of arbitration clause for answering the disputes raised by members touching upon oppression and mismanagement does not arise at all. The arbitration clause even if it forms part of Articles of Association but is violation of section 9 of the Act the same cannot be enforced by law. However it is clarified that an arbitration clause in an agreement between the parties and any disputes between the parties on subject matter covered within the terms of agreement shall fall within the jurisdiction of any arbitrator subject to certain statutory provisions. The core issue namely whether the applicant has made out any case to refer the subject matter of the CP to arbitration need to be answered in negative - application dismissed.
Issues Involved:
1. Whether the subject matter of the company petition should be referred to arbitration. 2. Commonality of parties between the arbitration agreement and the company petition. 3. The scope of the arbitration agreement in relation to the subject matter of the company petition. 4. Timeliness and bona fides of the application under section 8 of the Arbitration and Conciliation Act, 1996. 5. Whether the reliefs sought in the company petition can be adjudicated through arbitration. Detailed Analysis: 1. Reference to Arbitration: The applicant sought to refer the subject matter of the company petition to arbitration based on an arbitration clause in the Articles of Association and the Shareholders Agreement (SHA) dated 30.07.2008. The applicant argued that the disputes, including issues of share allotment and director removal, were covered under the arbitration agreement. The respondents opposed, asserting that the application aimed to deprive them of their right to file a petition under sections 397, 398, and 237 of the Companies Act, 1956, and that the arbitration agreement did not cover the subject matter of the company petition. 2. Commonality of Parties: The respondents contended that the arbitration agreement lacked commonality of parties with the company petition. The SHA involved multiple parties, including investors and promoters, some of whom were not parties to the current application. The Board found that not all promoters listed in the SHA had signed the agreement, rendering it incomplete and unenforceable. Therefore, the commonality of parties required under section 8 of the Arbitration and Conciliation Act was not satisfied. 3. Scope of Arbitration Agreement: The Board analyzed whether the disputes in the company petition fell within the scope of the arbitration agreement. The petitioners alleged acts of oppression, such as improper share allotment and director removal, which were not explicitly covered by the SHA. The Board noted that the reliefs sought in the company petition, including reinstatement of directors and investigation into company affairs, could not be resolved through arbitration. The statutory provisions under sections 397 to 403 of the Companies Act, 1956, provided exclusive jurisdiction to the Company Law Board (CLB) for such matters. 4. Timeliness and Bona Fides: The Board observed that the application under section 8 was filed belatedly, after significant delays and without a satisfactory explanation. The respondents had not filed a counter to the main petition despite sufficient time being granted. The Board concluded that the application was not made in good faith and was an attempt to delay proceedings. 5. Reliefs Sought in Company Petition: The reliefs sought in the company petition included cancellation of share allotments, reinstatement of directors, and investigation into company affairs. These reliefs were beyond the scope of arbitration and fell under the exclusive jurisdiction of the CLB. The Board emphasized that statutory provisions could not be overridden by arbitration agreements, as per section 9 of the Companies Act, 1956. Conclusion: The application to refer the subject matter of the company petition to arbitration was dismissed. The Board held that the arbitration agreement was incomplete and unenforceable, the parties lacked commonality, and the subject matter of the company petition could not be resolved through arbitration. The respondents were directed to file their counter to the company petition within three weeks.
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