2012 (8) TMI 1158 - Board - Companies Law

Summary

Issues involved:
The issues involved in this judgment are the interpretation of arbitration agreements in the articles of association of a company, the applicability of sections 397/398 of the Companies Act, 1956, and the jurisdiction of arbitrators in matters of oppression and mismanagement within a company.

Interpretation of Arbitration Agreement:
The Company Application No. 27 of 2012 filed by the R-1-company sought reference of disputes alleged in CP No. 8/2012 to an arbitrator based on an arbitration agreement in the articles of association. The contention was that the arbitration agreement is binding on the parties and covers all disputes, including acts of oppression and mismanagement. The counsel for the applicant cited relevant case law to support this argument.

Applicability of Sections 397/398 of the Companies Act:
The petitioner argued that the alleged acts of oppression and mismanagement required adjudication under sections 397/398 of the Companies Act, 1956, and therefore, could not be referred to an arbitrator. Additionally, reference was made to an order under section 17 of the Act regarding the transfer of the company's registered office.

Jurisdiction of Arbitrators in Matters of Oppression and Mismanagement:
The counsel for the petitioner contended that the disputes in CP No. 27 of 2012 could not be referred to an arbitrator, citing relevant case law. The judgment highlighted that arbitrators cannot grant equitable reliefs as sought under sections 397 and 398, and the orders envisaged under section 402 cannot be given by an arbitrator. The court emphasized that the statutory rights of shareholders under sections 397 or 398 cannot be ousted by a provision in the articles of association.

Conclusion:
After considering the submissions and case law, the court held that the matter in CA No. 27 of 2012 cannot be referred to an arbitrator. It was emphasized that arbitrators do not have the jurisdiction to decide issues under sections 397, 398, 402, or 403 of the Companies Act. The court dismissed CA No. 27/2012 and required the respondents to file counter affidavits within three weeks. The company petition was scheduled to be argued on merits on a specified date.