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TMI Blog2015 (12) TMI 1378X X X X Extracts X X X X X X X X Extracts X X X X ..... e in an agreement between the parties including provision of arbitration. The other argument advanced by Mr. Nayyar equaily lacks merit. It emerges from para 27 of the judgment of Hon'ble Supreme Court rendered in the case of Everest Holding Ltd. (2008 (10) TMI 629 - Supreme Court Of India ) wherein observed that Arbitrator can find out and adjudicate as to whether or not a company is functional and if it was not functional then he could always find out the nature and status of its assets and can also issue directions and pass orders regarding dues and liabilities and also for taking recourse to appropriate remedy. The aforesaid observations were made in the teeth of the view taken by Hon'ble Supreme Court in the case of Haryana Telecom Ltd. (1999 (7) TMI 545 - SUPREME COURT OF INDIA ) that Arbitrator would have no power to order for winding up of a company for which a sole fora has been provided by the Companies Act. I do not think that para 27 of the judgment of the Supreme Court advances the case of applicant-petitioner. It cannot be concluded that arbitrator enjoys all those powers which are vested in a CLB under sections 397, 398, 402 and 403 of the Companies Act. I don't f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been placed on record (Annexure P-1). As a result Respondent No. 1-company was incorporated on 04.09.2001 under the Companies Act, The Joint Venture Agreement (for brevity 'JV Agreement) was also executed by the Dutch party and the Indian Party on 18.09.2001. It is appropriate to mention that by virtue of Article 3A of the Articles of Association of Respondent No. 1 company, the JV Agreement and Annexures attached with it were to form a part and parcel of Articles of Association. The provisions of the JV Agreement and Annexures appended therewith were to prevail in case of any conflict between the two. According to the JV Agreement the petitioner No. 1 was liable inter alia to identify and recondition the machinery for Respondent No. 1- Company, pre-finance the other machines required, update the technology and training package etc. He was also required to keep it ready for being transferred/transported to the Respondent No. 1- Company. Respondent No. 2 on its part had agreed to provide liaison service with various consultants and was to obtain State and Central Govt. approvals, identify and select the land for establishing the company and to select local machinery supplier etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed by a unanimous decision of the General Meeting in which all the shareholders are present. (d) Extensions or significant reductions of the activities of the company. (e) Increase in Authorized capital or share capital. (f) The purchase or lease or sale or other disposition (by mortgage, pledge, creation of any lien or encumbrances, or otherwise) by the Company of any real property whatsoever, or-except in the ordinary course of business of any material asset. (g) Establishment of subsidiaries or acquisition of or merger with any other company. (h) The understanding of additional financial liabilities that result in a higher debt/equity ratio than the one mentioned in article 2 paragraph 2. (i) Recommendation of any form of financial restructuring or dissolution or liquidation of the Company except when required by the applicable law. (j) Recommendation of declaration of dividends or any other disbursement of the Company's shares or the forfeiture of any such shares by the Company. (k) Decisions to enter any transactions as specified in Article 9 paragraph 4. (l) Any investment in another Company or legal entity or except in the ordinary course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09.2014. These meetings again were held without any representation of Dutch Party. All these resolutions have been challenged in the company petition on the ground of no notice, short notice and lack of unanimity as per stipulation in the JV Agreement. On the basis of aforesaid facts the petitioners have then alleged that they have become victim of oppression and mismanagement at the instance of respondent Nos. 2 to 4 by virtue of reducing them to minority at their back, removing them as Chairman/director holding meeting without unanimity. 6. In addition the petitioners have also accused respondent Nos. 2 to 4 with various other acts of oppression and mismanagement. It has been pointed out that respondent Nos. 2 to 4 are diverting the business of Respondent No. 1-company to their own company known as Ayushman Ropes Tapes Pvt. Ltd which is an added respondent. It has also been alleged that respondents Nos. 2 to 4 have been using the work force and machinery of Respondent No. 1-company for its production in their personally owned company Ayushman Ropes Tapes Pvt. Ltd which has common wall with the Respondent No. 1-Company at Kanpur. 7. It is the case of the petitioner tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 4 from altering the shareholding pattern and the composition of the Board of Directors of the company without leave of this Board except as provided hereinabove; K. Declare as null and void and set aside any action taken due to the illegal and unlawful resolutions of the Board of Directors; L. To pass appropriate orders under section 397 of the Companies Act, 1956 to regulate the affairs of the company and to end oppressive acts complained thereof and also to pass appropriate directions under section 398 of the Act thereby ending conduct of the affairs of the company which are being conducted in a manner prejudicial to public interest, the company and various stakeholders; M. Direct to debar the Respondent Nos. 2-4 to act as Director(s) in the Respondent No. 1 company, N. Scheme be framed to regulate the management and affairs of the company on such terms and conditions as this Board may deem, fit and proper to end deadlock in the company; O. Pass such other/further order/directions, which this Board may deem fit and proper in facts and circumstances of the present case. 8. When the matter came up for consideration on 01.07.2015 this forum has passed the following order:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to a arbitrator or it is beyond. During the hearing it transpires that the Respondents have not filed any reply to the petition which would be necessary for recording prima facie findings. In view of the above learned counsel for the Respondent seeks time to file reply within a period of three weeks i.e. on or before 22.07.2015 with a copy in advance to the counsel opposite. Counsel for the Petitioners may then file their rejoinder within further two weeks with a copy to the counsel opposite. The matter be listed for hearing on 13.08.2015. Before parting I must notice the submission made by the learned counsel for the Petitioner for interim relief urging that Respondent Nos. 1 to 4 have started an other independent company in the name and style of Ayushmann Ropes Twines to produce the same product by using the same machinery, premises and labour. In para 8 of the petition these allegations against Respondent Nos. 1 to 4 have been highlighted namely using of same worker, premises and machinery of the Respondent No. 1 company for the benefit of their own company namely Ayushmann Ropes Twines (Ayushmann Ropes and Tapes Pvt Ltd.?). Therefore interim directions are required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranted by the Arbitrator. According to the learned counsel the principal issue raised in the company petition is breach of JV Agreement. By virtue of Article 18 of the Arbitration Agreement all disputes relating to JV Agreement were referable to arbitration as held by Delhi High Court in Vijay Sekhri's Case (supra). 12. Mr. Mehta learned counsel for the non-applicant-petitioner has however urged that in a properly constituted company petition filed under s. 397, 398, 402 and 403 of the Act the reliefs available to the petitioner cannot be granted by an arbitrator. According to the learned counsel despite the arbitration agreement under Article 18 of the JV Agreement no reference to arbitrator can be made unless the petition could be regarded as mala fide. Learned counsel has emphasized that the relief claimed in various clauses of para 22 cannot be granted by an Arbitrator. In order to illustrate learned counsel has pointed out that an arbitrator cannot restore the ratio of share capital between the petitioner and the respondents nor it can restore the Board of Directors by deciding that non-applicant-petitioner were illegally removed. It has also been pointed out that the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks 398. Application to Company Law Board for relief in cases of mismanagement:- (1) Any members of a company who complain- (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or (b) that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors, or of its managing agent or secretaries and treasurers or manager, or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers, or in the ownership of the company's shares, or if it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference; (g) any other matter for which in the opinion of the Company Law Board it is just and equitable that provision should be made. 403. Interim order by Company Law Board. Pending the making by it of a final order under section 397 or 398, as the case may be, Company Law Board may, on the application of any party to the proceeding, make any Interim order which it thinks fit for regulating the conduct of the company's affairs, upon such terms and conditions as appear to it to be just and equitable.' 14. A bare perusal of aforesaid provision would reveal that Company Law Board enjoys wide powers to adopt correctional mechanism where the affairs of the company are being conducted in a manner prejudicial to interest of the General Public or in a manner oppressive to any Member(s) and/or shareholders of the company. A close scrutiny of section 402 would show that Company Law Board is clothed with wide powers for regulating the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in the context of s. 9(b) of the Companies Act that any provision in any memorandum, article or agreement to the extent of repugnancy to the Companies Act would be void. In the present case learned counsel for the applicant-respondent placed reliance on Article 18 of the JV Agreement which appears to be repugnant to the provision of sections 397 398 of the Companies Act when the ratio of the judgment is applied to the facts of the case in hand, The Delhi High Court went on to observe that such an article providing for arbitration would be void. It has been suggested that a repugnancy of such a nature can be resolved by holding that such an article is wholly void when tested on the touch stone of section 9(b) of the Companies Act or that by declaring that the articles does not apply when the proceedings under sections 397 and 398 are initiated before the Company Law Board. In any case article 18 cannot operate for the purposes of staying the proceedings in a properly instituted petition u/ss. 397 398 read with 402 403 of the Companies Act. Similar view has been expressed in the case of Surindra Kumar Dhawan v. R. Vir Ors. 47 comp case 276 and Manavendra Chitnis Another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora, Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding-up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognise that there are matters which cannot be decided by means of arbitration. 41. Mustill and Boyd in their Law and Practice of Commercial Arbitration in England (2nd Edn., 1989), have observed thus: In practice therefore, the question has not been whether a particular dispute is capable of settlement by arbitration, but whether it ought to be referred to arbitration or whether it has given rise to an enforceable award. No doubt for this reason, English law has never arrived at a general theory for distinguishing those disputes which may be settled by arbitration from those which may not. . . . ' 19. Thus Bombay High Court followed the rationale of public and private fora apparently. Keeping in view the nature of rights involved for adjudication in a petition filed under ss. 397 and 398 of the Companies Act. Such disputes touch upon the larger public interest and status of a company. The right are determined by the judicial forum which results into a judgement in rem. These factors bring the disputes out of the purview of arbitrability. 20. The High Court further held that the types of reliefs which an Arbitrator can award are limited by considerations of public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious or oppressive petition and one that is merely 'dressing up' to avoid an arbitration clause 23. It is pertinent to mention that against the judgment of Bombay High Court in the case of Rakesh Malhotra (supra) a Special leave to appeal bearing Nos.(c) 24572- 24579/2014 has been filed. Leave has been granted by Hon'ble Supreme Court on 10.9.2014 and it has expressly been stated that 'No stay: The matter may proceed before the Company Law Board in accordance with law.' 24. In view of the overwhelming authority of Punjab Haryana High Court, Delhi High Court and the Bombay High Court it is not possible to accept the submission made by Mr. Nayyar seeking reference of dispute raised in the company petition to Arbitrator by acting on article 18 of the JV agreement dated 18.9.2001. 25. I may nevertheless refer to the submissions made by Mr. Nayyar in support of the application for reference u/s 8 of the Arbitration Act. Learned counsel has argued that the whole case of non-applicant-petitioner is founded on the breach of JV Agreement and therefore the dispute becomes arbitrable as per the ratio of the judgment in Vejay Sikhri's case (supra). The argum ..... X X X X Extracts X X X X X X X X Extracts X X X X
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