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TMI Blog1980 (9) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... C. A. No. 93 of 1979 came up for hearing before me on November 15, 1979. Considering that the point involved in the application was of considerable importance, I decided to refer the matter for decision to a larger Bench and that is how we are seized of the matter. The question that needs determination by us, may be stated thus : "Whether an arbitration agreement to which the company was a party, continues to bind the company subsequent to the order of winding up as it did before? " The contention of Mr. J. S. Narang, learned counsel for the petitioner (in C.P. respondent in C.A.), was that the official liquidator is not bound by the arbitration clause in the agreement, that after a company goes into liquidation, it is only the court which has exclusive jurisdiction to entertain or dispose of any suit or proceeding by or against the company or any claim made by or against it, and that as the clause in the agreement envisaging reference of the dispute to arbitration is repugnant to the provisions of section 446(2) of the Act, the same was void and could not legally be enforced. On the other hand, Mr. R. S. Mongia, learned counsel for the respondents, contended that even afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court. (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court". An analytical study of section 446 would show that sub-section (1) provides that when a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of winding-up order, shall be proceeded with against the company except by leave of the court and subject to such terms as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration clause in the agreement does not take away the jurisdiction of the court. It is not repugnant to the provisions of section 446(2) of the Act. As earlier observed, the foundation on which the argument was built by Mr. J. S. Narang is nonexistent. A party to an arbitration agreement has a perfect right to bring an action in respect of the dispute covered by an arbitration agreement and the court has jurisdiction to. try such dispute or stay the action and refer the matter to arbitration It is only when a court has jurisdiction to entertain an action, that it either tries the dispute itself or refers it to arbitration, Mr. R. S. Mongia, learned counsel for the applicant, had drawn our attention to a Division Bench judgment of the Gujarat High Court in Star Trading Corporation v. Rajratna Naranbhai Mills Co. Ltd. [1971] 41 Comp. Cas. 1023, where a similar question with which we are faced, had arisen, and the learned judges on that aspect of the matter observed thus (p. 1027, 1028): "Now one thing is clear that, when a company is ordered to be wound up, the arbitration agreement to which the company was a party is not superseded : it does not cease to be operative. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween them shall be decided by the private forum of arbitrators. It does not take away the jurisdiction of the court. A party to an arbitration agreement has a perfect right to bring an action in respect of the dispute covered by an arbitration agreement and the court has jurisdiction to try such dispute despite the existence of the arbitration agreement. The court cannot throw out the action on the ground that it has no jurisdiction to entertain it. The court has, of course, discretion to say whether it will try the dispute or stay the action where the other party applies in time and otherwise complies with the conditions of section 34 of the Arbitration Act, 1940, but that is very much different from saying that the court has no jurisdiction to entertain the action. The very fact that the court may refuse to grant stay of the action shows that the court has jurisdiction to entertain it. When the court stays the action, it does so not because of any lack of jurisdiction but because the court is of the view that a party should not be permitted to proceed with the action in breach of the arbitration agreement by which he is bound : See Russell on arbitration, seventeenth edition, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the instant case, reference to arbitration is being asked on the basis of an agreement entered into between the company and the third party. As observed by the learned judges in Star Trading Corporation's case [1971] 41 Comp. Cas. 1023 (Guj.), when a company is ordered to be wound up, the arbitration agreement is not superseded and the same continues to bind the company subsequent to the order of winding up as it did before. In this situation, as earlier observed, the Allahabad High Court judgment is of no help and assistance to the learned counsel for the petitioner. As a result of the aforesaid discussion, we hold that a clause existing in an agreement for making a reference of a dispute to arbitration, continues to bind a company subsequent to the order of winding up as it did before, that such a clause does not impinge upon or take away the jurisdiction of the court and that it would be for the court to decide whether to try the dispute which has been brought before it or to stay the action where the other party applies in time and otherwise complies with the conditions of section 34 of the Arbitration Act, 1940. B. S. Dhillon, J. I agree. - - TaxTMI - TMITax - Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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