2006 (12) TMI 564 - Board - Companies Law

Summary

Issues Involved:
1. Jurisdiction of the Company Law Board (CLB) vs. Arbitration Agreement.
2. Allegations of Oppression and Mismanagement.
3. Applicability of Section 8 of the Arbitration and Conciliation Act, 1996.

Summary:

1. Jurisdiction of the Company Law Board (CLB) vs. Arbitration Agreement:

The petitioner, M/s Financial Technologies Limited, filed a company petition u/s 397 and 398 of the Companies Act, 1956, alleging acts of oppression and mismanagement in M/s E-Logistics Private Limited. The respondents sought to refer the matter to arbitration based on agreements containing arbitration clauses. The petitioner argued that the CLB has exclusive jurisdiction over matters of oppression and mismanagement, which cannot be overridden by an arbitration agreement. The respondents contended that the disputes arise from the agreements and should be resolved through arbitration as per the arbitration clauses.

2. Allegations of Oppression and Mismanagement:

The petitioner alleged various acts of mismanagement including unauthorized payments, collection of tax without corresponding payments, discrepancies in stocks, and unethical financial practices. Specific grievances included irregular allotment of shares, fudging of accounts, and mismanagement in granting loans. The petitioner claimed these acts were independent of the agreements and fell within the exclusive domain of the CLB. Conversely, the respondents argued that these issues were covered by the Term Sheet, Reciprocal Obligations Agreement, and Investor Rights Agreement, which contain arbitration clauses.

3. Applicability of Section 8 of the Arbitration and Conciliation Act, 1996:

The petitioner argued that Section 8 of the Act, 1996, does not apply to petitions u/s 397 and 398, as the reliefs sought cannot be granted by an arbitrator. The respondents maintained that the disputes are directly flowing from the agreements and should be referred to arbitration. The Board noted that the grievances, though styled as acts of oppression and mismanagement, are related to breaches of the agreements. The Board held that u/s 8 of the Act, 1996, it is mandatory to refer the parties to arbitration if the subject matter of the action is the same as the agreements. The Board directed the parties to resolve the disputes through arbitration, citing precedents that support arbitration in cases of contractual breaches.

Conclusion:

The Board concluded that the disputes raised in the company petition are to be resolved by arbitration as per the agreements, and directed the parties accordingly.