9911796707
TMI Blog2000 (12) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... ther applications were made by the petitioners and the respondents. Since the company consists of only two groups of shareholders with equal representation on the Board and the articles providing for affirmative votes on vital matters by both the groups, we suggested to the parties that they should attempt at an amicable settlement of the disputes. A consensus emerged that the assets of the company could be divided equally between the two groups and towards this end, various proposals were considered. However, in spile of our best efforts, during subsequent hearings, the disputes could not be solved amicably. On 16-5-2000, the respondents mentioned the instant application dated 12-5-2000 and accordingly arguments were advanced on this application and concluded on 25-10-2000. 3. Shri Tikku appearing for the applicant argued as follows : Both the groups of shareholders entered into a shareholders' agreement on 8-2-1997 wherein various terms were agreed upon by the parties to regulate the conduct of the affairs of the company. Most of the terms of this Agreement were incorporated in the articles of association of the company. In article 33 of the agreement, it has been provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne. Referring to the decision of the Delhi High Court in [1998] 5 Comp. LJ 509 (sic), he pointed out that in that case the reply to an interim application has been treated as the first statement and accordingly the application for arbitration was dismissed. In Suresh Kumar Jain v. Hindustan Ferro Industries Ltd. [1998] 3 CLJ 501 (CLB) (Delhi) the CLB had dismissed an application under section 8 of the Arbitration Act on the ground that the applicant therein had filed a substantive reply to an interim application. In P. Anand Gajaparhi Raju v. P. V.G. Raju [2000] 4 SCC 539, the Supreme Court has held that once the other party has submitted his first statement of defence, then, the person who has brought action before the Court has a right to have the dispute adjudicated by that Court. Therefore, in the present case, since the respondents had filed their first statement of defense by filing a reply to the interim application, the petitioners have the right to have the disputes adjudicated by the CLB. The respondents filed their reply to the interim application on 13-9-1999 and later they themselves filed 3 other applications for interim relief on 15-12-1999, 18-1-2000 and 3-3-2000. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even in article 190 relating to Arbitration, the provision made is that the aggrieved party may refer the dispute to arbitration. In Wellington Associates Ltd. v. Kirit Mehta [2000] 4 SCC 272, the Supreme Court has held that if the parties agree that they may refer a dispute to arbitration, then, such an agreement cannot be considered to be an arbitration agreement in terms of section 7 of the Arbitration Act. Only when an arbitration agreement fulfils the requirements of section 7 of the Arbitration Act, then, recourse to section 8 of the Arbitration Act is permissible. As has been held in Lloyds Steel Industries Ltd.v. ONGC Ltd. AIR 1997 Bom. 337, the Court, before referring the parties to arbitration in terms of section 8, should satisfy itself that there is a valid arbitration agreement. Even otherwise, it has been held by Delhi High Court in Kare {P.) Lid., In re [1977] 47 Comp. Cas. 276 that arbitration agreement in the articles of association of a company cannot take away the statutory rights of shareholders as it would be against the provisions of section 9 of the Act. The same proposition has also been reiterated in O.P. Gupta v. Shiv General Finance (P.) Ltd. [1977] 47 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y arising out of affirmative votes by both the groups as provided by the articles and such a dead lock situation can be resolved only by the CLB by exercising its powers under section 402 and an arbitrator cannot do so. In view of this, this application should be dismissed. 7. Shri Tikku, replying to the arguments of Shri Mookherjee, submitted as follows : Since the shareholders' agreement relates only to the affairs of the company, it is immaterial that the company is not a party to the agreement. Further, practically all the terms of the shareholders' agreement have been incorporated in the articles of the company and therefore in terms of section 36 of the Companies Act, these provisions are binding on all the shareholders. The binding nature of the articles of Memorandum on the members has been confirmed by the decisions of the Supreme Court in V.B. Rangaraj v. V.B. Gopalakrishnan AIR 1992 SC 453 and by Madras High Court in Madhava Ramachandra Kamath v. Canara Banking Corpn. Ltd. AIR 1941 Mad. 354. Therefore, when the Articles provide for referring disputes in the affairs of a company to arbitration, then, recourse to section 8 of the Arbitration Act is fully permiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arbitrator as per the agreement as well as per the provisions of article 190 of the Articles of Association of the company. 8. His further submissions were : The reply filed by the respondents relates only to the interim application and therefore cannot be considered to be a defense in substance especially when the CLB itself had directed the respondents to file a detailed reply on the petition. Since section 397/ 398 proceedings are discretionary in nature, the statutory right vested under section 8 of the Arbitration Act cannot be ignored. The mere delay on the part of the respondents to file this application cannot be a ground for dismissing the application especially when the Arbitration Act does not specify any time limit other than stipulating that this application should be filed before submitting the first statement on the substance of the dispute. All along, the respondents have been participating in the proceedings before the CLB only on the issue relating to amicable settlement of the disputes and hence the present application was filed belatedly. In Food Corpn. of India v. Yadav Engineer Contractor [1982] 2 SCC 499, the Supreme Court has held, with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons arc not outside the purview of section 45 of the Arbitration Act; the principles applicable to a winding up proceeding, need not necessarily apply to a proceeding under section 397/398; the provisions of the Arbitration Act are not repugnant to the provisions of section 9 of the Act; once the CLB is convinced that the matters governed in a petition under section 397/398 of the Act relate to or arise out of or in connection with an arbitration agreement and that the reliefs appropriate to the facts of the case could be determined/granted by an arbitrator, then, the CLB is bound to refer the matter to arbitration in terms of the mandatory provisions of section 45 of the Arbitration Act provided that the agreement is not null and void, inoperative or incapable of being performed; if any of the requirements of section 45 is not satisfied, then, the CLB can decline to refer the parties to Arbitration; the judicial authority has to prima facie, come to the conclusion, that the requirement of section 45 have been fulfilled, before referring the parties to Arbitration. 10. In the present case, since we are dealing with section 8 of the Act, the same observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is to satisfy the Court that there is actually an arbitration agreement. As is evident from section 8(1), the Arbitration Agreement should cover the matter in respect of which the action has been brought in. Therefore, the Court has to satisfy itself that there is not only a valid arbitration agreement, it has also to satisfy itself that the said agreement covers the matter before it. Therefore, as held in Llyod Steel Case, the CLB would have no jurisdiction to refer the matter to arbitration in terms of section 8 unless otherwise, there is a binding and valid arbitration agreement in existence. As far as the contention of Shri Tikku that such an examination as to the validity of the arbitration agreement would arise only in terms of section 45 of the Act is concerned, we arc unable to accept that contention. Section 45 does not deal with the validity/existence of an agreement but it only deals with the duty of the Court to see whether the agreement which in existence is null and void, inoperative or incapable of being performed. Therefore, we are of the firm view that if there is no valid arbitration agreement, recourse to section 8 of the Act is not permissible. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the parties thereto submit themselves to the exclusive jurisdiction of the courts in Bombay. 5. It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuant to Arbitration Act, 1940 by each party appointing one arbitrator and the arbitrators so appointed selecting an umpire. The venue of arbitration shall be at Bombay. 14. Considering the two above clauses, the Court observed as follows: It is contended for the petitioner that the word 'may' in clause 5 has to be construed as 'shall'. According to the petitioner's counsel, that is the true intention of the parties. The question then is as to what is the intention of the parties. The parties, in my view, used the words 'may' not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the civil courts at Bombay are to be approached by way of a suit. Then follows clause 5 with the words 'It is also agreed' that the dispute 'may' be referred to arbitration implying that parties need not n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration Act. 15. In view of our finding that there is no valid and binding arbitration agreement satisfying the provisions of section 7 of the Arbitration Act, we could dismiss this application without considering the other objections of the learned counsel. Yet, since the petitioners have also raised an objection regarding non-fulfilment of the provisions of section 8, we shall examine the same. 16. As far as the requirements of section 8 of the Arbitration Act to file an application for referring the parties to arbitration before filing a statement on the substance of the dispute, we find that the respondents had filed a reply in September in relation to the interim reliefs sought for by the petitioners. In the petition, the petitioners have made certain allegations in regard to the Board Meetings on 28-11-1998, 5-12-1998, 8-12-1998, 31-12-1998 and 7-1-1999. According to the petitioners, the non-attendance of the respondent directors in some of these meetings has created a situation of deadlock. The interim relief sought for by the petitioners related to appointment of non-key personnel, Taking over land at Chandigarh, Gurgaon and Anandpur, commencement of the unit at Jaipur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of various documents in spite direction from the Bench. In Hindus tan Ferro case, the similar was the situation wherein after having taken participation in the proceedings for a number of days by filing replies etc. for interim applications, the respondents therein filed an application under section 8 and this Board declined to entertain the same. However, in 20th Century Finance Corpn. 's case (supra), since the proceedings were only related to discussions on amicable settlement, this Board held that the respondents therein had not submitted any statement on the substance of the allegations. In the present case, besides participating in the discussions on the amicable settlement, the respondents had, notwithstanding their statement that they would be filing an application under section 8, not only filed a statement on the substance of the petition in the interim reply, but also filed applications for interim reliefs, signifying very clearly their intent to submit to our jurisdiction. Therefore, we are of the view that the observation of the Court in Anand Gajapathi Raju's case (supra) that once the other party has submitted his first statement of defence, then, the pers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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