2008 (2) TMI 942 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petitioner lost his right to seek a reference u/s 8 of the Arbitration and Conciliation Act, 1996.
2. Whether the decision of the Company Law Board rejecting the application amounted to an omission to exercise jurisdiction lawfully vested in it.

Summary:

Issue 1: Right to Seek Reference u/s 8 of the Arbitration and Conciliation Act, 1996

In these writ proceedings under Article 226 of the Constitution, the petitioner sought directions for quashing an order dated June 15, 1998, by the Company Law Board (CLB) in applications moved in Company Petition No. 55 of 1996. The petitioner alleged control over 40% of the shareholding in respondent No. 26 and claimed that disputes between two groups led to an arbitration agreement. The respondent disregarded the agreement and filed a suit before the Calcutta High Court, which was later stayed. The second respondent then filed a Company Petition before the CLB seeking orders u/s 397 and 398 of the Companies Act. The petitioner filed an application u/s 8 of the Arbitration and Conciliation Act, seeking to stay the CLB proceedings pending arbitration, which was rejected by the CLB on grounds of delay and disclosure of defense. The petitioner contended that the CLB's order was erroneous and that the arbitration agreement should prevail. The respondents argued that the petitioner had misappropriated company funds and that the arbitration clause could not be enforced as the nominated counsel was only a conciliator. The court held that the petitioner did not lose the right to seek reference u/s 8 as the preliminary objection to maintainability did not amount to entering into the substance of the dispute.

Issue 2: Decision of the Company Law Board

The court examined whether the CLB's rejection of the application was lawful. The factual narrative showed that the disputes were to be submitted to arbitration u/s 8. The arbitration agreement's existence was not seriously contested, and the petitioner had sought interim measures under Section 9 of the Arbitration Act. The court noted that Section 8 mandates judicial authorities to refer disputes to arbitration if the litigants were parties to the arbitration clause, provided the first statement on the substance of the dispute had not been filed. The court found that the petitioner's preliminary objection did not constitute a waiver of the right to seek reference. However, the court also noted that the arbitration agreement involved only a few parties, while the CLB proceedings included many others who were not parties to the arbitration agreement. The Supreme Court's decision in Sukanya Holdings was cited, which held that Section 8 applies only when the subject-matter of the suit is fully arbitrable and all parties to the litigation are parties to the arbitration agreement. The court concluded that the CLB's decision was not illegal or materially irregular, as not all parties in the CLB proceedings were parties to the arbitration agreement.

Conclusion:

The court dismissed the petition, upholding the CLB's decision and vacating all interim orders. The court emphasized that it would not interfere with the decisions of statutory tribunals unless there was manifest illegality or overreach of powers.