2016 (5) TMI 910 - HC - Companies Law

Validity of interim order - CLB had passed the interim order directing the parties to maintain status quo as regards the share holding and composition of the Board of Directors of the company with a further restraint order upon both the rival groups from creating any third party interest over the fixed assets of the company without the leave of the Board - Held that - In order to succeed in getting a reference of the disputes raised under Section 397, 398 read with Section 402 and 403 of the Companies Act to arbitration, the applicant/ appellants would not only be liable to show that the entire gamut of the dispute falls within the purview of the arbitration agreement but also the fact that company petition is a sham and mischievous one which has been decked up deliberately so as to gainfully sustain the plea of non-arbitrability of such dispute. There would also be a heavy burden cast upon the appellants to show that the arbitration agreement would bind the non-signatory respondent No 10-15. In a case involving such complex questions of law and facts determination of the aforesaid aspect may call for deeper examination of the matter by the CLB. As such, the CLB cannot be found fault with for non-disposal of the C.A.907/2015 on the date of issuing the order dated 27/07/2015. Coming to the argument made by Mr Banerjee that due to the pendency of the C.A. No 907 /2015, the CLB did not have any jurisdiction to pass the order dated 27/07/2015 it may be mentioned here-in that there is nothing in the Act of 1996 that supports such a conclusion. In the absence of any express provision contained in the statute, ouster of jurisdiction of the CLB cannot be readily inferred by this court. There can be no doubt about the fact that in the instant case an obligation was cast upon the CLB to decide the objection as to the question of jurisdiction raised under section 8 of the Act of 1996 at the earliest point of time. But a perusal of the impugned order also indicates the reasons that have been recorded by the CLB for issuing the said order despite the pendency of the section 8 application. As such, the submission of Mr. Banerjee to the effect that the CLB did not have any jurisdiction to pass the order dated 27/07/2015 pending disposal of the section 8 application is found to be wholly untenable and hence, does not commend acceptance by this court. Thus the company appeal find under section 10(F) of the Act of 1996 is held to be devoid of any merit and the same is hereby dismissed. The questions of law would stand answered accordingly.

Summary

Issues Involved:
1. Justification and validity of the interim order passed by the Company Law Board (CLB) without recording reasons.
2. Jurisdiction of the CLB in passing the interim order during the pendency of an application under Section 8 of the Arbitration and Conciliation Act, 1996.

Issue-wise Detailed Analysis:

1. Justification and Validity of the Interim Order:

The appellants challenged the interim order dated 27/07/2015 passed by the CLB, which directed the parties to maintain the status quo regarding the company's shareholding and Board of Directors' composition. The appellants argued that the CLB passed the interim order without recording any reasons, findings of a prima facie case, balance of convenience, or irreparable loss, making the order a nullity in the eye of law. They cited several judicial precedents emphasizing the necessity of recording reasons in judicial orders.

The respondents defended the CLB's interim order, arguing that it was an ad-interim order passed in the exercise of discretionary powers under Section 402 of the Companies Act, 1956. The respondents contended that the CLB had recorded sufficient reasons for passing the interim order aimed at granting minimum interim protection to ensure the company petition was not rendered infructuous. The respondents also argued that the interim order was just and equitable, aimed at maintaining the status quo pending a fuller consideration of the contentious issues.

The court, upon perusal of the CLB's order, noted that the CLB had discussed the brief factual background and observed that the issues raised in the company petition related to non-adherence to the Articles of Association, constituting acts of oppression and mismanagement. The CLB had recorded a prima facie satisfaction regarding the existence of a prima facie case and had dealt with the objections raised under Section 8 of the Arbitration and Conciliation Act, 1996. The court concluded that the CLB's order disclosed sufficient reasons and was not a nullity.

2. Jurisdiction of the CLB During Pendency of Section 8 Application:

The appellants argued that the CLB committed a manifest illegality by passing the interim order dated 27/07/2015 without first deciding the application under Section 8 of the Arbitration and Conciliation Act, 1996. They contended that once an application under Section 8 is filed, the CLB is obligated to refer the dispute to arbitration, and it lacks jurisdiction to pass any order affecting the parties' rights and interests.

The respondents countered that the allegations of oppression and mismanagement in the company petition fell within the exclusive jurisdiction of the CLB under Sections 397, 398, 402, and 403 of the Companies Act, 1956. They argued that the CLB's jurisdiction could not be ousted by the arbitration clause, especially when the respondent Nos. 10 to 15 were not signatories to the arbitration agreement. The respondents cited judicial precedents supporting the CLB's jurisdiction in cases of oppression and mismanagement.

The court noted that the existence of an arbitration agreement was not in dispute, but the matters complained of in the company petition exclusively fell within the CLB's jurisdiction. The court referred to the Supreme Court's decision in Sukanya Holdings, which held that bifurcation of a subject matter involving parties not signatories to the arbitration agreement is not permissible. The court observed that the CLB had recorded reasons for issuing the interim order despite the pendency of the Section 8 application and concluded that the CLB had jurisdiction to pass the interim order.

Conclusion:

The court dismissed the company appeal, holding that the CLB's interim order dated 27/07/2015 was justified and valid, as it disclosed sufficient reasons and was within the CLB's jurisdiction. The court also directed the CLB to expeditiously dispose of the pending application under Section 8 of the Arbitration and Conciliation Act, 1996, within 30 days from the receipt of the court's order. The appellants were granted liberty to seek alteration or modification of the interim order if so advised. There was no order as to costs.