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TMI Blog2004 (3) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... which provides for resolving the disputes by arbitration under auspices of the Indo - German Chamber of Commerce in accordance with the Rules framed by it. 2. The facts, in brief, leading to the present application are that the Company was promoted by the second respondent in January, 1988 with main objects to carry on the business of manufacturers and dealers of all kinds of industrial, commercial and domestic moulds. By virtue of the JVA, the petitioner came to hold 69.30% and the second respondent together with his wife, being the third respondent hold 0.88% of the total issued and paid-up-capital of the Company. In addition, the Company owes to the petitioner huge sums of money on account of supply of machinery and tools, long term loans, royalty, export advances etc. In spite of majority shareholding of the petitioner and its huge investments, the Company and the second respondent diluted the majority shareholding of the petitioner from 69.30% to 26.14% in the Company, without giving notice of the Board Meeting or the Extraordinary General Meeting of the Company by causing reduction of share capital of the Company and immediately thereafter, increasing its share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition vest only with the arbitral tribunal constituted according to the agreement. All the claims in the present Company Petition arise out of the JVA and necessarily the rights and obligations of the parties to the JVA must be adjudicated by the agreed arbitral tribunal. Thus there is complete commonality of issues and parties to the JVA with those raised before the CLB in the present Company Petition. Accordingly, Shri Datar learned Senior Counsel contented that the present application is filed under Section 8 of the Act, 1996 to refer the parties to the arbitration. In this connection the learned Senior counsel referred to the order of this Board made in Gautam Kapur and Ors. v. Limrose Engineering and Ors. (CP.No. 18 of 2002), wherein it has been held that it is not correct as a proposition to state that matters covered in a petition under Sections 397 398 are not arbitral. Whether such matters are arbitral or not would depend upon the facts of each case and on whether such allegations can be referred to without referring to the terms of the arbitration agreement. In the present case all the issues arising out of the Company Petition are subject to the various terms and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to enforce the JVA as nominees and assignees of the second respondent under the JVA. The JVA expressly recognizes the right of assignment of the parties thereto. In this connection the learned Senior Counsel referred to Naveen Kedia v. Chennai Power Generation Ltd. - [1999] 95 CC 640 to show that the assignees/nominees under an agreement as parties thereto are bound by the arbitration. Moreover, there are no allegations against respondents 3 4 in the Company Petition excepting the petitioners are seeking to set aside the allotment of shares made in favour of the fourth respondent whose presence is not required for determination of the validity of impugned allotments, as held in Malleswara Finance Investments Company Private Limited v. CLB - (1995) 82 CC 836. The Company has filed a Civil suit in C.S. 953 of 2003 against the petitioner and several others not only in relation to the issues pertaining to the right of the Company to the trademarks, but also certain issues which are not covered or amenable to arbitration under the JVA. Moreover, the Company has since obtained leave of the Civil Court to approach the appropriate jurisdictional forum to obtain relief in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terms of the JVA. The petitioner has never accepted the fourth respondent as a subscriber to the shares of the first respondent Company and therefore, the purported unilateral acceptance of the JVA by the fourth respondent cannot, in any way, create arbitration agreement between the petitioner and respondents. Any unilateral undertaking by a person that he would observe and be bound by the terms of an agreement does not make such person a party to the agreement as held in Bharti Televentures Ltd v. DSS Enterprises Pvt. Ltd. 92 (2001) DLT 788 . There is no arbitration agreement in writing as specified in Section 7 (4) and (5) of the Act 1996 between the petitioner and the respondents 3 4. As there is no mutual consent between the parties, there cannot be any arbitration agreement as held in K.K. Modi v. K.N. Modi - (1998) 3 SCC 573 . Thus, there is no commonality of issues and parties to the JVA and the Company Petition. A judicial body may refer the parties to arbitration only in cases where the entire subject matter of the proceedings is subject of an arbitration agreement and all the parties to proceedings are the parties to the arbitration agreement. A judicial body ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligations of the parties thereto assume relevance to determine these contentious issues. Towards this end, the alleged grievances of the petitioners are summarized as under: - The Company had issued 18,50,000 equity shares in favour of the fourth respondent by increasing the authorised capital of the Company within less than a month of passing a resolution for capital reduction, without notice to the petitioner of the Board meeting held on 02.12.2002 approving the capital reduction, thereby majority shareholding of the petitioner constituting 69.30 per cent was reduced to minority with 26.14 per cent of the paid-up capital of the Company in violation of the provisions of the Act and the Articles of Association of the Company. The petitioner and IP Support and its nominee were not given notice of the extraordinary general meeting held on 30.12.2002 at which the capital reduction to 10 per cent of the original share capital was approved and also for the extraordinary general meeting held on 25.01.2003 at which the authorised share capital was increased. Similarly, the paid-up capital was increased to 26.5 per cent of the original paid-up capital on 04.04.2003 without notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointment of the Chairman, Managing Director, non-retiring Director and retiring Director. The Company shall give 30 clear days written notice of every meeting of Board of Directors to every director of the Company unless the petitioner agrees for a shorter notice. (Clause 13). Clause 14 deals with the quorum for the meeting or adjourned meeting of the Board. A nominee of the petitioner or the third respondent may transfer shares held by such a nominee in favour of a party of whom he/it is a nominee. (Clause 20). The second respondent in the event of desirous of transferring any shares held by him or the second respondent or his nominee declines to take up shares offered pursuant to any further issue of capital, shall offer such shares to the petitioner. The same stipulations shall be applicable to the petitioner. (Clause 21 22). From a critical analysis of the grievances of the petitioner and the relevant terms of the SHA, while it is apparent that the acts complained of in the Company Petition directly relate to the rights of the petitioner in their capacity as member of the Company arising out of the provisions of the Act and Articles of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areholders in their capacity as members of the company arising out of the provisions of the Act, Articles or on equitable grounds. The learned counsel for the respondents cited the cases of Chennai Power Corporation, and RFB Latex Limited cases to contend that this Board has always referred petitions under Sections 397/98 to arbitration whenever there was an arbitration agreement. A perusal of those judgments would indicate that the allegations in those petitions, even though were styled as acts of oppression/mismanagement, were directly arising out of the respective arbitration agreements and there were not really acts of oppression as generally held by various courts/CLB. In RBF Latex case, this Board retained those of the allegations which were not part of the agreement and relegated others to arbitration. (However, in Sukanya Holdings's case, the Apex Court has held that such bifurcation is not permissible and the entire matter has to be adjudicated by the judicial forum). In the present case, it is to be noted that the petitioners have alleged acts of oppression, independent of the terms of the MOU on the ground that in a family company, disturbance of directorship or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to reduction of share capital; Section 193 for non-maintenance of proper minutes of the Board and shareholders meeting; Section 286 for non-issue of notices for the Board meeting; falsification of balance sheet and profit and loss account of the Company; removal of the Directors nominated by the petitioner and improper conduct of the Board meetings. It is, therefore, clear that the grievances of the petitioner are directly relating to the rights of or benefits to shareholders in their capacity as member of the Company, arising out of the provisions of the Act and Articles of Association of the Company and that the petitioner is enforcing their statutory power which can be adjudicated, in my view, without reference to the terms of the SHA. These acts of oppression, if established, would entitle the petitioners for appropriate relief in terms of Section 402. No doubt the Apex Court in Hindustan Petroleum Corporation (supra) laid down the proposition that the court has a mandatory duty to refer the disputes arising between the contracting parties by virtue of the arbitration clause to an arbitrator, on account of the fact that the appellant before the Apex court had exe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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