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TMI Blog2017 (12) TMI 1450X X X X Extracts X X X X X X X X Extracts X X X X ..... to affirmative voting right and Article 112 of the AOA which is covered by SHA and dispute redressal mechanism is provided in SHA and under Article 122 of the AOA. Therefore, there exists valid arbitration agreement between the parties and respondents No. 3 to 7 are only nominee directors. Thus, they are not a necessary party in the case, and their non-party to SHA will not in any way affect the reference to arbitration. It is also clear from the above that petition under Sec. 241 and 242 is only dressed up a petition with a purpose to bypass the arbitration agreement. So, the issues No. l, 2 and 4 are decided in the affirmative in favour of the petitioner. Regarding the issue No. 3, it is decided that the dispute is arbitrable and should be referred to arbitration and only on the ground of that some of the respondents are not a party to SHA, application for referring the matter to arbitration cannot be refused.On the above basis, it is clear that the interim application filed by the applicant deserves to be allowed. - IA NO. 181/KB/2017 arising out of CP No. 149/KB/2017 - - - Dated:- 23-11-2017 - MR. V.P. SINGH AND MR. JINAN K. R., JJ. For The Petitioner : S.N. Mook ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 2. 5. It is further stated in the application that the only shareholders of the respondent No. 2 are the respondent No. l and the applicant, who held shares in the proportion of 65:35, the original respondents No. 3 and 4 in the CP are nominee directors of the applicant and the original respondents No. 5, 6 and 7 in the C.P. are nominee directors of respondent No. l on the board of directors of respondent No. 2. The respondent No. l has also disclosed this fact in the CP. 6. Applicant has stated that the subject matter of the CP is a dispute inter-see the shareholders, for which parties have contractually agreed upon a dispute resolution mechanism by way of arbitration. There is no public interest as the respondent No. l has claimed in a weak attempt to maintain this action under the Companies Act, 2013. In the circumstances, the applicant has filed this application under Sec. 45 of the Arbitration and Conciliation Act, 1996 (from now on referred to as Arbitration Act, 1996) as the respondent No. l has wrongly invoked the jurisdiction of this Tribunal. As per terms and conditions of SHA any dispute, controversy, claim or disagreement of any kind whatsoever between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Sec. 45 of the Arbitration Act seeking direction from this Tribunal to stay/dismiss the present petition and direct the parties to SHA to resolve the disputes in arbitration. 11. In reply to the above petition, Shri Manoj Agarwal has filed affidavit on behalf of the first petitioner in the original CP. It has been submitted in reply that owing to various acts of oppression committed by Rishima as a shareholder in SHPL, as also Rishima s nominee directors (being original respondents No. 2 to 4 in the CP) acting under the instructions and at the behest of Rishima ignoring their fiduciary duties to SHPL. This act is gross abuse of the affirmative voting rights that were granted to them under SSHA. 12. It is further contended by the petitioner No. l that Rishima s contention are untenable and its application is misconceived. Indeed, Rishima s case is contradictory to the stand it has itself taken in numerous pleadings filed by it in respect of the arbitration between Rishima, SIDCL and Shristi Hotel Pvt. Ltd. 13. It is further contended by the petitioner in the CP. that mere existence of arbitration agreement and that too only between some of the parties cannot ipso facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther contended that the disputes raised in the CP are not contractual disputes subject to the dispute resolution provisions of the SSHA or the Articles of SHPL, but issues relating to the grossly abusive and oppressive actions of Rishima and its nominee directors in SHPL, the respondents No. 3 and 4 of the CP. It is further contended that a private Arbitral Tribunal does not have jurisdiction to deal with the matters/disputes covered in the CP. This Tribunal has exclusive jurisdiction to decide the disputes raised in the CP. 21. It is further submitted that for deciding a dispute of oppression and mismanagement this Tribunal has exclusive jurisdiction. This Tribunal being a specialised tribunal, set up under a special statute and vested with specific powers to serve as a one-stop for all disputes affecting companies. 22. It is submitted that this Tribunal has jurisdiction to adjudicate the issues, matters and disputes raised in the CP. A private tribunal does not have the power to grant the reliefs sought in the CP. It is only this Tribunal that has the power to grant the reliefs sought in the CP. 23. In the rejoinder, the applicant has submitted that the legal relationsh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have heard the argument advanced by Ld. Advocates of both the parties and perused the record. A decision on Issues no 1, 2 3 are relating to the same fact therefore for convenience they are taken together. Issue nos. 1, 2 3: 28. Admittedly company petition No 149 of 2017 has been filed on the grounds of oppression and mismanagement U/S. 241 of the Companies Act 2013 in March 2017 and the applicant/Respondent No 2 in the company petition has invoked arbitration as far back as on 11.02.2016. To decide whether parties should be referred to arbitration or not we have to see the terms of SHA and the relief claimed in Company Petition. Relevant terms of SHA and reliefs contended in company petition are given below for ready reference. 29. The relationship between the shareholders of SHPL is governed by the SHA, the provisions of which (including the arbitration agreement) have been incorporated in the Articles of Association (AOA) of SHPL. 30. Some of the relevant clauses of SHA and the Corresponding Articles in the AOA are as follows: Provision in SHA (at pg.198 of CP) Topic Corresponding Articles in AOA (At pg. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Project by December 2011) entitles Rishima to sell its shares to be Promoters of the investment amount plus 25 % IRR. Article 119 Clause 24 of SHA which is incorporated in Article 122 of AOA provides the dispute resolution process arising out of the SHA. Dispute Resolution Disputes in connection with or arising out of the SHA (including regarding its existence, validity or termination) are to be finally resolved by arbitration. ( Arbitration Agreement ). The arbitration is to be conducted under the ICC Rules, and the seat of the arbitration in Singapore. Article 122 The relief sought for in Company Petition 149 of 2017: (i) A declaration that the Respondent No. 2 to 4 and their nominees, representatives or assigns have no right or entitlement to exercise affirmative voting rights regarding clause 112 of the Articles of Associations of the Company. (ii) To Delete clause 112 of the Articles of Associations of the Company. (iii) Respondent No. 3 and 4 be removed as the Directors of the Company. (iv) To grant relief under Section 241 and 242 of the Companies Act, 2013. (v) An order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The arbitration is to be conducted under ICC Rules and the seat of arbitration in Singapore. This is also incorporated in Article 122 of the Articles of Association of the company. Therefore, on the basis of SHA and Articles of the Company, it is clear that under SHA there is specific provision which is regarding appointment of statutory auditor and affirmative vote reguiring Rishima s affirmation for appointment/change of debtors of the company and for approving accounts of the company and all these things has also been in Articles of Association of the company and the dispute resolution mechanism has also been in SHA as well as in Articles of Association which specifically provides that in case any dispute arising out of the SHA (including its existence validity or termination) are to be finally resolved through arbitration under ICC Rules with the city of arbitration in Singapore. Thus, it is clear that the abovementioned SHA and by Articles of Association undisputedly is binding on both the parties, i.e. the petitioner of the company petition and Rishima, respondent No. 2. 33. On perusal of the CP No. 149/2017 it is clear that the petitioner has filed the petition on 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief which has been sought in CP and if granted will directly affect the AOA and SHA whereas parties themselves have agreed to resolve such disputes which have arisen on account of AFFIRMATIVE VOTING RIGHT given through SHA by Arbitration. 36. There is valid arbitration agreement which is clear from SHA and Article 112 of the Articles of Association. 37. It is pertinent to mention that respondent No. 2 has invoked the jurisdiction of Arbitral Tribunal against SIDCL and SHPL under the ICC Rules in February 2016 and arbitration is pending. Rishima s initiation of the arbitration is purportedly due to alleged breaches of the SHA by the petitioner, which includes the affirmative voting right granted to Rishima. Arbitration has been going on for more than one year, and SIDCL and SHPL have participated in the arbitration. 38. It is pertinent to mention that it was never disputed by the SIDCL s in its reply to the reguest of arbitration that the said dispute is not arbitrable. The Arbitral Tribunal has been constituted which comprises Mr. Nigel Pleming, and Mr. Harish Salve, who are the nominated Arbitrators by Rishima SIDCL and Lord Collins has been appointed by the two arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evern Trent Water Purification Inc. [2013] 1 SCC 641 : at page 679, has given the Interpretation of Section 45 of the 1996 Act and has held that: In order to invoke the jurisdiction of the court under Section 45, the applicant should satisfy the prerequisites stated in Section 44 of the 1996 Act. Chapter I, Part II deals with enforcement of certain foreign awards in accordance with the New York Convention, annexed as Schedule I to the 1996 Act. As per Section 44, there has to be an arbitration agreement in writing. To such arbitration agreement, the conditions stated in Schedule I would apply. In other words, it must satisfy the requirements of Article II of Schedule I. Each contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration their disputes in respect of a defined a legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitration. The arbitration agreement shall include an arbitration clause in a contract or an arbitration agreement signed by the parties or entered in any of the specified modes. Subject to the exceptions stated therein, the reference shall be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of CPC and when the court is satisfied that an agreement is enforceable, operative and is not null and void, it is obligatory upon the court to make a reference to arbitration and pass appropriate orders in relation to the legal proceedings before the court in exercise of its inherent powers. 159. The terms and conditions of the international distribution agreement were an integral part of the principal agreement as Appendix II and the principal agreement had an arbitration clause which was wide enough to cover disputes in all the ancillary agreements. It is not necessary for us to examine the choice of forum or legal enforceability of legal system in the present case, as we find no repugnancy even where the main contract is governed by law of some other country and the arbitration clause by Indian law. They both could be invoked, neither party having invoked the former will be no bar for invocation of the latter in view of Arbitration Clause 30 of the mother agreement. 161. Thus, in view of the above, we hold that the disputes referred to and arising from the multi-party agreements are capable of being referred to the Arbitral Tribunal in accordance with the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner and respondent No. 2 and as per the agreement, the dispute resolution mechanism is provided to resolve such type of disputes. Only by filing a petition under Sec. 241/242 of the Companies Act, 2013 and dressing up as a petition of oppression and mismanagement it cannot be said as a dispute exclusively triable by this Tribunal under the provision of Companies Act, 2013. By filing the CP, petitioner has sought relief for amendment of the Articles of Association specifically relating to the affirmative voting right which has been given to Rishima under the SHA and Articles of Association which is the basis of the formation of the Company. So, it cannot be said that this dispute cannot be decided by an arbitral tribunal. In our view, the alleged dispute is arbitrable which is fully covered by the SHA and Articles of Association of the company. Thus as per law laid down by Hon ble Supreme Court in the case of Chloro Controls India P. Ltd. (supra), it is clear that the matter is an arbitrable dispute. 44. It is also to be pointed out that Hon ble Supreme Court, in the case of A. Ayyasamy v. A. Paramasivam [2016] 10 SCC 386 , has held that: In this behalf, we have to begi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be maintainable............ Hence, in addition to various classes of disputes which are generally considered by the courts as appropriate for decision by public fora, there are classes of disputes which fall within the exclusive domain of special fora under legislation which confers exclusive jurisdiction to the exclusion of an ordinary civil court. That such disputes are not arbitrable dovetails with the general principle that a dispute which is capable of adjudication by an ordinary civil court is also capable of being resolved by arbitration. However, if the jurisdiction of an ordinary civil court is excluded by the conferment of exclusive jurisdiction on a specified court or tribunal as a matter of public policy such a dispute would not then be capable of resolution by arbitration.- ............. 43. Hence, the allegations of criminal wrongdoing or of statutory violation would not detract from the jurisdiction of the Arbitral Tribunal to resolve a dispute arising out of a civil or contractual relationship on the basis of the jurisdiction conferred by the arbitration agreement........... 13. Once an application in due compliance with Section 8 of the Arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to arbitration, the court must plainly discourage and discountenance litigative strategies designed to avoid recourse to arbitration. Any other approach would seriously place in uncertainty the institutional efficacy of arbitration. Such a conseguence must be eschewed. 45.1 First and foremost, it is necessary to emphasize that the judgment in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] does not subscribe to the broad proposition that a mere allegation of fraud is ground enough not to compel parties to abide by their agreement to refer disputes to arbitration. More often than not, a bogey of fraud is set forth if only to plead that the dispute cannot be arbitrated upon. To allow such a plea would be a plain misreading of the judgment in N. Radhakrishnan [TV. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12]. As I have noted earlier, that was a case where the appellant who had filed an application under Section 8 faced with a suit on a dispute in partnership had raised serious issues of criminal wrongdoing, misappropriation of funds and malpractice on the part of the respondent. It was in this backg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in coming to the conclusion that a mere allegation of fraud in the present case was not sufficient to detract from the obligation of the parties to submit their disputes to arbitration. I also agree with the directions issued. A fresh line must be drawn to ensure the fulfilment of the intent of Parliament i n enacting the 1996 Act and towards supporting commercial understandings grounded in the faith in arbitration. 56. The legal position has been succinctly summarised in International Commercial Arbitration by Gary B. Born [ 2nd Edn., Vol. I, p. 846] thus: ..... under most national arbitration regimes, claims that the parties underlying contract (as distinguished from the parties arbitration clause) was fraudulently induced have generally been held not to compromise the substantive validity of an arbitration clause included in the contract. The fact that one party may have fraudulently misrepresented the quality of its goods, services, or balance sheet generally does nothing to impeach the parties agreed dispute resolution mechanism. As a conseguence, only fraud or fraudulent inducement directed at the agreement to arbitrate will, as a substantive matter, impeach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any suit or proceeding empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal. 49. On the above basis Ld. Counsel for the Respondent/Petitioner in C.P. has argued that the jurisdiction of civil court is barred by Section 430 of the Companies Act 2013. Therefore, by the law laid down by Hon ble Supreme Court in the abovementioned case such type of dispute cannot be referred to arbitration. 50. It is an undisputed fact that arbitration tribunal has no power to decide the dispute of oppression and mismanagement which comes under Sec. 241 and 242 of the Companies Act, 2013 and this Tribunal has exclusive jurisdiction to decide the matter and jurisdiction of the civil court are also barred as per provision of Sec. 430 of the Companies Act. But at the same time, it is to be seen whether it comes within the purview of Sec. 241 and 242 or it has been dressed up in a way to give the colour of a dispute of oppression and mismanagement. In this case after scrutiny of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if any dispute arising out of SHA then special forum is provided under Articles of Association and SHA itself. So, it cannot be said that by filing a petition under Sec. 241 and 242 of the Companies Act, the dispute will come within exclusive jurisdiction of NCLT and in fact the petitioner has got the right which cannot be termed as a right of rem, because it will affect only the concerned parties who are party to agreement. 55. Ld. Counsel for the Respondent/Petitioner in C.P. has relied on the judgment of Hon ble Supreme Court in the case of Ayyasamy v. Paramisivam and ors. (supra). But it is to be made clear that para 38 cannot be read in isolation of other paragraphs of the judgment, i.e. Para 36-37. Para 38 of the judgement is in continuation of law laid down in paragraphs 36 and 37 of the said judgment. 56. In the above mentioned case Hon ble Supreme Court has clearly laid down the law that certain disputes such as disputes relating to right and liabilities arising out of criminal offences, matrimonial disputes relating to divorce, judicial separation, matters of guardianship, insolvency and winding up, testamentary matters, eviction of tenancy matters which are gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Schedule I. Reference of non-signatory parties is neither unknown to arbitration jurisprudence nor is it impermissible. In the facts of a given case, the court is always vested with the power to delete the names of the parties who are neither necessary nor proper to the proceedings before the court. In the cases of group companies or where various agreements constitute a composite transaction like mother agreement and all other agreements being ancillary to and for effective and complete implementation of the mother agreement, the court may have to make reference to arbitration even of the disputes existing between signatory or even non-signatory parties. However, the discretion of the court has to be exercised in exceptional, limiting, befitting and cases of necessity and very cautiously. Thus, it is clear that even a non-signatory parties to some agreements can pray and be referred to Arbitration provided they satisfy the prerequisites under sec 44 and 45 of the Arbitration Act 1996. Therefore, it cannot be said that the matter cannot be referred to arbitration because respondents No. 3 to 7 in the CP were not a party to SHA. Since the respondents, No. 3 and 4 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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