9911796707
TMI Blog1999 (6) TMI 484X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of board meetings. (f) Fabrication of the minutes of board meetings. (g) Second expansion project/fabrication of company records. (h) Obtaining loan from IDBI in violation of the sponsorship agreement. (i) Siphoning off of funds and non-disclosure of interest. (j) Failure to co-operate with the auditors. With these allegations, the petitioners have sought for various reliefs, inter alia, including directions to the company to amend the articles of association in line with the terms of the sponsorship agreement, ordering payment of interest at 24 per cent. on the delayed payment of dividend, for declaration that the board meeting dated December 7, 1996, and March 31,1997, as null and void due to non-issue of notices for the meeting to the petitioners, direction to the company to terminate all arrangement and agreement relating to the second expansion project, restraining the company from utilising the funds raised by way of rights issue, ordering a special audit of the company, for a declaration that respondents Nos. 2 to 4 have conducted the affairs of the company in total violation of the provisions of the Act, etc. 3. Shri Anil Sharma, advocate for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms of Section 8 of the Arbitration Act. 4. Shri Dholakia, senior advocate appearing for the petitioner, submitted that the petitioner has invested about ₹ 2.5 crores in the share capital of the company and is a substantial shareholder. The allegations in the petition relate to various acts of oppression and mismanagement in the affairs of the company, against which as a substantial shareholder, the petitioner is entitled to file this petition. He pointed out that the sponsorship agreement consists of two parts--one, about the petitioner becoming a shareholder and the second, regarding the undertaking of certain obligations. Having become a member, the petitioner has got all the rights of a shareholder as envisaged in the Act. He submitted that in terms of Section 9 of the Act, the provisions of the Act override the memorandum and articles and any other agreement which are repugnant to the provisions of the Act. Since Sections 397 and 398 give a statutory right to the shareholders to move the Company Law Board in case of oppression and mismanagement, the statutory right conferred by the statute cannot be defeated by a private arbitration agreement. For this proposition, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. Therefore, according to him, while in terms of Section 9 of the Companies Act, the Company Law Board is bound to entertain the petition, even otherwise, since many of the allegations relate to matters independent of the terms of the sponsorship agreement, the question of referring the parties to arbitration does not arise and, therefore, the application should be dismissed. 5. We have considered the pleadings and arguments of counsel, Shri Dholakia, referred to Section 9 of the Act to state that no provision of any agreement can take away the statutory rights conferred by the Companies Act and he also relied on a Delhi High Court case in this regard. Section 9 of the Act deals only with memorandum, articles or any agreement or any resolution which are repugnant to the provisions of the Act and does not deal with the provisions of other statutes. As a matter of fact, Section 5 of the Arbitration Act which reads notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this Act makes it clear that in case of an arbitration agreement, a judicial authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en as a formal pleading in the absence of an affidavit in writing. Even otherwise, discussions on amicable settlement cannot be considered as a statement on the substance of the dispute. Therefore, we do not consider that by participating in the discussion for amicable settlement, the respondents have forfeited their right to invoke the provisions of Section 8 of the Arbitration Act. Yet another point raised by learned counsel was with reference to the currency of the agreement. According to him, the currency of the agreement expired in October, 1997, in terms of Clause 1.2 of the agreement and as such the agreement is not subsisting on the day when the present application was filed and, therefore, the Company Law Board referring the parties to arbitration does not arise. While it seems that there is substance in this argument, yet we find that in Clause 8.7 it is stipulated that the terms of the agreement shall be binding on the company as long as the petitioner holds shares in the company. The contradiction in these two clauses is something which the arbitrator has to decide. As far as the Company Law Board is concerned, as long as there is an arbitration agreement, then in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncluded. The facts of Escorts Finance Ltd. v. G.R. Solvents and Allied Industries Ltd. [1999] 96 Comp Cas 323 (CLB) are different from the present one, inasmuch as, all the allegations in that case wholly related to a sponsorship agreement in which there was an arbitration clause and, therefore, the Company Law Board declined to entertain the petition and referred the parties to arbitration. In a recent case of Khandwala Securities Ltd. v. Kowa Spinning Ltd. [1999] 97 Comp Cas 632 (CLB) in which also there were allegations in respect of matters covered in a sponsorship agreement covered by an arbitration clause as also matters independent of the agreement, we dismissed the application filed under Section 8 of the Arbitration Act, and directed the respondents to file a reply on the allegations which were independent of the sponsorship agreement. 9. In view of our finding that there are allegations in the petition independent of the sponsorship agreement, the prayer of the respondents in C. A. No. 213 of 1998, to refer the parties to arbitration and dismiss the petition is rejected. The respondents should file their replies covering all the allegations in the petition other than ..... X X X X Extracts X X X X X X X X Extracts X X X X
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