2006 (12) TMI 565 - Board - Indian Laws

Summary

Issues Involved:
1. Whether the disputes raised in the company petition are subject to arbitration as per the agreements.
2. Whether the Company Law Board (CLB) has exclusive jurisdiction to entertain the petition for oppression and mismanagement.

Summary:

Issue 1: Arbitration Clause Applicability
The respondents filed an application u/s 8 of the Arbitration and Conciliation Act, 1996, to refer the parties to arbitration, arguing that the disputes in the company petition arise out of the Term Sheet, Investor Rights Agreement, and Reciprocal Obligations Agreement, which contain arbitration clauses. They contended that the reliefs claimed in the petition flow from these agreements and can only be granted by an arbitrator, not the CLB. They cited precedents like Sukanya Holdings (P) Ltd. v. Jayesh H. Pandey and Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. to support their argument against forum shopping.

Issue 2: Exclusive Jurisdiction of CLB
The petitioner opposed the application, asserting that the CLB has exclusive jurisdiction u/s 397 and 398 of the Companies Act, 1956, to address acts of oppression and mismanagement. They argued that the main grievances, such as irregular allotment of shares, fudging of accounts, and mismanagement in granting loans, do not arise from the agreements and thus fall outside the scope of arbitration. They referenced cases like 20th Century Finance Corporation Ltd. v. RFB Latex Ltd. to argue that the CLB must examine these issues.

Judgment:
The Board considered the arguments and noted that the acts complained of in the petition, such as unauthorized payments, discrepancies in stocks, and misappropriation of funds, are covered by the agreements. The petitioner had previously invoked the arbitration clause, and the agreements contain default and arbitration clauses. The Board held that the disputes, though styled as acts of oppression and mismanagement, flow directly from the agreements and cannot be adjudicated without reference to their terms. Citing R. Balakrishnan v. Vijay Dairy and Farm Products Private Limited, the Board emphasized that disputes arising from agreements must be referred to arbitration u/s 8 of the Act, 1996. Consequently, the parties were directed to resolve the disputes through arbitration.