2020 (9) TMI 889 - Tri - Companies Law

Referral of case to arbitrator - declare the notice of EGM dated 16th December 2019, invalid - cancellation of the proposed EGM and during the pendency - direction to Respondent to maintain the status quo in the shareholding of the Respondent-1 - HELD THAT - Merely, plain reading of the provisions of Section 45 of the Arbitration and Conciliation Act, 1996 shows that the word unless it is prima facie find is added by amendment dated 30.08.2019 in Section 45 of the Arbitration and Conciliation Act, 1996, which shows that if prima facie it is find that the agreement is null and void or inoperative or incapable of being performed then Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable. Admittedly, the main application is pending for consideration and during the pendency of the main application, the present two interlocutory applications, which we have referred have been filed by the respective parties - we would also like to refer the contention raised on behalf of the Learned Counsel appearing for the Petitioner, who in course of his arguments submitted that if an application under Section 241 and 242 of the Companies Act, 2013 for the Oppression and Mismanagement is filed, in that case, the Section 45 of the Arbitration and Conciliation Act, 1996 is not applicable because Section 241 and 242 of the Companies Act, 2013 are in respect of the Oppression and Mismanagement in the Company, which cannot be decided by the Arbitrator. Whether there is Oppression and Mismanagement as alleged by the Petitioner and that cannot be decided unless we consider the averment made in the main Company Petition and that can only be done, if we give both the parties to place their case at the time of final hearing of main Application, therefore, in our considered view, the application filed by the Respondent-2 under Section 45 of the Arbitration and Conciliation Act, 1996 can only be considered at the time of final hearing of the Company petition and not at this stage, by formulating the preliminary questions, if there is an arbitration clause then the party will be governed by the Arbitration clause and not entitled to file an application under Section 241 and 242 of the Companies Act, 2016. This issue can only be decided at the time to final hearing of the application and not at this stage. Therefore, instead of passing any order on the merit of the application filed on behalf of the Respondent-2 under Section 45 of the Arbitration and Conciliation Act, 1996, we think it is proper to give liberty to the Respondent-2 to raise this issue during the course of final hearing and order shall be passed on merit after considering the submissions of both the parties at the time of final hearing on the point, whether Section 45 of the Arbitration and Conciliation Act, 1996 can be invoked or not? Whether the notice of the EGM dated 16.12.2019 is invalid, illegal and on the basis of that the proposed EGM can be cancelled or not? - HELD THAT - As we have already referred the clause 4.9 of the Joint Venture Agreement which shows that the quorum is not said to be completed unless one Director nominated by PR and one Director by SPAL. Admittedly, the Petitioner was not participating in that meeting - since the Petitioner has tendered his resignation, therefore, he has not participated in the meeting. He was not party to the meeting. Applicability of JVA - HELD THAT - The contention of the Respondents that JVA is not binding upon the respondent is not liable to be accepted, rather we are of the considered view that since the JVA dated 19th September 2006 is ratified and approved by the Board of Directors by Respondent Company on 16th October 2006, therefore, it is binding upon the parties. Whether quorum of the Board meeting was completed in the absence of non-participation of the Petitioner in that Board meeting? - HELD THAT - We have no option but to hold that presence of the Petitioner in the board meeting is necessary in order to constitute the quorum for the board meeting, if the Petitioner has not participated or absent in the board meeting then the board has no other option but to adjourn the meeting in view of clause 4.9 of the Joint Venture Agreement - there are no force in the contention raised on behalf of the Learned Counsel appearing for the Respondent that Joint Venture Agreement is not binding upon the company. Since in the case in hand, the Petitioner was not the part of that meeting of Board of Directors in which it was decided to call the extraordinary general meeting, therefore, in our considered view that decision is against the provision contained under Section 100 of the Companies Act, 2013 and any notice issued under Section 101 of the Companies Act, 2013 is not the valid notice - we have no option but to hold that notice issued by the Respondent-3 by which he informed the Petitioner that the extraordinary general meeting is going to be held on 13th January 2019 is not valid and on the basis of which no meeting can be held on that day. Whether the company can raise the fund or not? - HELD THAT - Since company needs fund under such circumstances, we cannot restrain the company to raise the fund. Of course, it must be in accordance with the law and it must be placed before the duly constituted meeting of the Board of Directors and therefore, we are unable to accept the submissions of the Petitioners that the company be restrained from raising the fund, the decisions upon the Petitioner place reliance on this issue, we have gone through the decisions and in our considered view if there is need of fund for the smooth functioning of the company in that case, no restrain order can be passed, which stop the company from raising the fund. The prayer of the Petitioners to grant status quo in respect of shareholding of the Respondent-1, rather, we made it clear if the raising of fund is duly approved by the Board constituted as per the JVA and then the Company is at liberty to raise the fund in any manner which will be approved by the Board of Directors duly constituted under JVA is rejected.

Summary

Issues Involved:
1. Applicability of Section 45 of the Arbitration and Conciliation Act, 1996.
2. Validity of the notice of Extraordinary General Meeting (EGM) dated 16th December 2019.
3. Authority of the company to raise additional funds.

Issue-wise Detailed Analysis:

1. Applicability of Section 45 of the Arbitration and Conciliation Act, 1996:

During the pendency of Company Petition No. 137/241-242/2019, Respondent-2 filed an application under Section 45 of the Arbitration and Conciliation Act, 1996, requesting that the matter be referred to arbitration due to an arbitration clause in the Joint Venture Agreement (JVA) dated 19th September 2006. The Petitioner opposed this, arguing that the arbitration agreement was null, void, inoperative, or incapable of being performed. The Tribunal noted that Section 45 mandates referral to arbitration unless the agreement is prima facie null and void, inoperative, or incapable of being performed. The Tribunal decided that the issue of the applicability of Section 45 should be determined at the final hearing of the main petition, not at this stage.

2. Validity of the notice of Extraordinary General Meeting (EGM) dated 16th December 2019:

The Petitioner sought to declare the notice of EGM dated 16th December 2019 invalid, arguing that it was issued by an unlawfully constituted Board without the necessary quorum as per Clause 4.9 of the JVA. The Tribunal examined the JVA, which required the presence of at least one director nominated by each party to constitute a quorum. Since the Petitioner was not present at the Board meeting that decided to call the EGM, the Tribunal found that the quorum was not met, making the EGM notice invalid. The Tribunal quashed the notice and ruled that no meeting could be held based on it.

3. Authority of the company to raise additional funds:

The Petitioner also challenged the proposed increase in the authorized share capital of the company, arguing that it was done with the intent to oust the Petitioners. The Tribunal noted that the financial condition of the company necessitated raising additional funds, as discussed in various Board meetings attended by the Petitioner. The Tribunal ruled that the company could raise funds if duly approved by a Board constituted as per the JVA. The Tribunal rejected the Petitioner’s request to maintain the status quo in shareholding, allowing the company to raise funds in any manner approved by the duly constituted Board.

Conclusion:

The Tribunal deferred the decision on the applicability of Section 45 of the Arbitration and Conciliation Act, 1996, to the final hearing of the main petition. It declared the EGM notice dated 16th December 2019 invalid due to improper quorum. The Tribunal allowed the company to raise additional funds, provided the decision is approved by a Board constituted as per the JVA.