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TMI Blog2013 (12) TMI 1763X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration and Conciliation Act, 1996 (for short "Arbitration Act") for determination of dispute under the Arbitration Act. The Company Law Board, having allowed the said C. A. No. 1 of 2013, as a consequence dismissed C. P. No. 78 of 2012 summarily. The petitioners in C. P. No. 78 of 2012, therefore, challenge the impugned order on the principal contention that statutory remedy against oppression and mismanagement can be adjudicated only by the Company Law Board in terms of the Act and not by an arbitrator. 3. Brief facts are as under : (a) The first appellant is engaged in the business of providing commercial training and coaching for various competitive examination especially Common Admission Test (CAT) under the brand name "T. I. M. E." to students desirous of seeking admission into management institutions. The first appellant, thus, used a franchisee model in various cities to run business by appointing franchisees for a particular city or area providing with specifications regarding the course curriculum, study material, teachers' qualifications, etc. In return, such franchisee pays "fee royalty" and "material royalty" to the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 8 of the Arbitration Act has since been allowed by the Company Law Board and consequently, C. P. No. 78 of 2012 was dismissed under the impugned order. The present appeal is, thus, directed against the said order. 4. By order dated July 31, 2013, while issuing notice to the respondents in this appeal, this court continued the interim order passed by the Company Law Board dated September 13, 2012, referred to above, for a period of eight weeks and the said order is being extended from time to time pending this appeal. 5. At the request of learned counsel for the parties, the main appeal itself has been heard at the admission stage on November 29, 2013 and December 6, 2013 and reserved. 6. Heard Mr. S. Ravi, learned senior counsel for the first appellant and Mrs. Nalina Mayegowda, learned counsel for the respondents. 7. The primary contention raised by Mr. S. Ravi, is with reference to the jurisdiction of the Company Law Board in dismissing C. P. No. 78 of 2012 filed by the petitioners under sections 397, 398 and 402 of the Act summarily. Learned senior counsel, therefore, submits that irrespective of existence of any arbitration clause or otherwise, the statutory remedy under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders and, therefore, the shareholders were obliged to avail the said remedy especially, as relief claimed in the company petition is relating to violation of the franchisee agreement and consequently, therefore, the Company Law Board allowed C. A. No. 1 of 2013. 10. Learned senior counsel submits that various allegations made in the company petition alleging oppression and mismanagement were not addressed by the Company Law Board and only relying upon the violation of non-compete clause, the Company Law Board came to the conclusion as if the said dispute entirely falls within the realm of arbitrable dispute. Further, the remedy seeking an order for winding up of the company or for that matter, a relief against oppression and mismanagement, being entirely within the jurisdiction of the company court or the Company Law Board in terms of the Act, section 8 of the Arbitration Act is wrongly applied by the Company Law Board. 11. In support of his submissions, learned senior counsel placed strong reliance upon the following decisions : Sumitomo Corpn. v. CDC Financial Services (Mauritius) Ltd. [2008] 82 SCL 495 (SC), Manavendra Chitnis v. Leela Chitnis Studios (P.) Ltd. [1985] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is maintainable, no question of law was decided by the Company Law Board with reference to oppression and mismanagement and hence, no appeal could lie against the impugned order under section 10F of the Act. In support of the aforesaid contention, learned counsel relied upon a decision of the Supreme Court in V. S. Krishnan v. Westfort Hi-Tech Hospital Ltd. [2008] 83 SCL 44 (SC), Palanisamy v. Milka Nutrients (P.) Ltd. [2008] 144 Comp Cas 619 (Mad) and Sunshine Buildhome (P.) Ltd. v. Madhusudan Garg [2008] 88 SCL 44 (Raj.). 15. On facts, learned counsel submits that all the three documents executed by and between the parties, viz., articles of association, franchisee agreement as well as the shareholders' agreement, undisputedly contain arbitration clause and primary dispute being with regard to violation of non-compete clause, as alleged, the dispute was clearly arbitrable and as such, rightly referred to by the Company Law Board under section 8 of the Arbitration Act. Learned counsel, therefore, submits that the appeal does not merit acceptance on any ground. 16. Since the appeal is being contested at the stage of admission itself, the appeal was heard finally and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made. 37. Appealable orders.--(1) An appeal shall lie from the following orders (and from no others) to the court authorised by law to hear appeals from original decrees of the court passing the order, namely :-- (a) granting or refusing to grant any measure under section 9 ; (b) setting aside or refusing to set aside an arbitral award under section 34. (2) Appeal shall also lie to a court from an order of the arbitral tribunal- (a) accepting the plea referred to in sub-section (2) or sub-section (3) of section 16 ; or (b) granting or refusing to grant an interim measure under section 17. (3) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or taken away any right to appeal to the Supreme Court." 18. In addition, the powers of the Company Law Board under sections 397, 398 and 402 of the Act were invoked while filing C. P. No. 78 of 2012 and it is appropriate to notice those provisions also at this stage : "397. Application to Tribunal for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. 402. Powers of Tribunal on application under section 397 or 398.--Without prejudice to the generality of the powers of the Tribunal under section 397 or 398, any order under either section may provide for - (a) the regulation of the conduct of the company's affairs in future ; (b) the purchase of the shares or interests of any members of the company by other members thereof or by the company ; (c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital ; (d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other, namely : (i) the managing director, (ii) any other director, (iii) and (iv)** ** ** (v) the manager, upon such terms and conditions as may, in the opinion of the Tribunal be just and equitable in all the circumstances of the case ; (e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the court referring the parties to arbitration." 21. It would be noticed from the above that condition No. 3, referred to above, requires that the subject matter of action and the subject matter of arbitration agreement must be the same. In the case on hand, while the subject matter of action before the Company Law Board is the allegation of oppression and mismanagement and for seeking relief against the same under sections 397 and 398 of the Act, the Company Law Board is empowered to pass any of the orders, as contemplated under section 402 of the Act, which includes winding up of the company, whereas the arbitrable dispute in terms of the respondents' application under section 8 of the Arbitration Act is a dispute relating to non-compete clause and the inter se rights of the parties in terms of the said agreement. The arbitration clause does not, obviously and could not cover the statutory remedy envisaged under sections 39 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Supreme Court in Stridewell Leathers (P.) Ltd. v. Bhankerpur Simbhaoli Beverages (P.) Ltd. [1994] 79 Comp Cas 139, wherein it is held that an appeal under section 10F of the Act lies to the jurisdictional High Court where the company is situated. 27. Learned counsel for the respondents, however, rightly points out that the decision in Sumitomo Corpn. (supra) was concerned with section 50 of the Arbitration Act, which specifically provides an appeal against the order referring the parties to arbitration under section 45 of the Arbitration Act whereas we are concerned with sections 8 and 37 of the Arbitration Act and hence, the said decision is distinguishable so far as the facts of the present case are concerned. 28. In Manavendra Chitnis (supra) it was held that (page 120) : ". . . merely because there is an arbitration clause or an arbitration proceeding, or for that matter an award, the court's jurisdiction under sections 397 and 398 cannot stand fettered . . . courts have gone to the length to hold that the matter which can form the subject matter of a petition under sections 397 and 398 cannot be the subject matter of an arbitration, for an arbitrator can have no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law arising out of such order. The present appeal, on the questions, as framed above, which arise, is clearly maintainable. The contention of learned counsel for the respondents merely looks at the impugned order from the point of view of allowing application under section 8 of the Arbitration Act filed by the respondents but not with reference to the dismissal of the company petition. Since the order impugned is a composite order allowing the respondents' application under section 8 of the Arbitration Act and consequently, dismissing the appellant's company petition under sections 397, 398 and 402 of the Act, in my view, this appeal is clearly maintainable on the questions of law, as above, under section 10F of the Act. I, therefore, do not find any impediment in allowing the appeal for the reasons aforesaid by answering the questions of law in favour of the appellant. 32. The decision relied upon by learned counsel for the respondents in V. S. Krishnan (supra) does not assist the respondents. Paragraph 16 of the said decision, which is relied upon holds that the decision of the Company Law Board, on the question of facts, is not open to appeal but all such decisions, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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