Rajasthan Development Trust Pvt. Ltd. v. Rani Surolia
2017-10-06
MOHAMMAD RAFIQ
body2017
DigiLaw.ai
JUDGMENT Mohammad Rafiq, J. - This application under section 11 of the Arbitration and Conciliation Act, 1996, has been filed by three petitioners, namely, (1) M/s. Rajasthan Development Trust Pvt. Ltd. through its Director Mr. Rajiv Pandey, (2) Mr. Rajiv Pandey and (3) Mrs. Rohini Pandey, praying for appointment of sole Arbitrator to adjudicate the dispute arising between the petitioners and the respondents. According to the averments made in the petition, the petitioner no. 1 is a company incorporated under the provisions of the Companies Act, 1956 and the petitioners no. 2 and 3 are the shareholders in the petitioner company. The petitioner company is a closely held company constituted by the family members of late Mr. S.D. Pandey, wherein Mr. S.D. Pandey held largest number of shares in his personal name and in the name of S.D. Pandey HUF being ''karta'' of the family. Mr. S.D. Pandey expired on 07.09.2000 and left behind many properties in and outside the Jaipur. It is averred in the petition that the respondents filed a company petition, which was mainly the effort of respondent no. 2, who does not hold any share in the company, to settle the dispute regarding the properties left by late Mr. S.D. Pandey, so as to get major share in the properties left by him. The company petition was filed before the Company Law Board under sections 397 and 398 of the Companies Act, 1956, claiming the relief against the oppression and mismanagement on the part of the petitioners on various grounds. The company petition was filed by the respondents primarily for rectification of the register of the member of the petitioner company, transfer of the shares and to regulate the affairs of the petitioner company. The petitioners herein filed an application bearing C.A. No. 307/2007 under section 8 of the Arbitration and Conciliation Act, 1996 for referring the matter to Arbitration as the disputes raised by the respondents relate to the affairs of the company and Memorandum of Association and Articles of Association of the petitioner company. The application filed by the petitioners under Sections 8 and 45 of the Act of 1996 came to be dismissed by the Company Law Board vide order dated 31.01.2008. Aggrieved thereby, the petitioners filed Company Appeal No. 1/2008 under the provisions of the Companies Act, 1956, in which interim order was granted staying the proceedings. 2. Mr.
The application filed by the petitioners under Sections 8 and 45 of the Act of 1996 came to be dismissed by the Company Law Board vide order dated 31.01.2008. Aggrieved thereby, the petitioners filed Company Appeal No. 1/2008 under the provisions of the Companies Act, 1956, in which interim order was granted staying the proceedings. 2. Mr. Gunjan Pathak, learned counsel for the petitioners, submits that as per Clause 53 of the Articles of Association of the Company, the present dispute is liable to be referred to Arbitration under the provisions of the Arbitration and Conciliation Act, 1996 (for short, ''the Act of 1996''), which provides that where any difference arises between the company on the one hand, any of the members, executors, administrators, assignee being on the other hands, touching the true intent or construction or the incidence or the consequences of these presents or touching any breach or alleged breach of these presents, or otherwise relating to any of the affairs of the company, every such difference shall be referred to the arbitration under the provisions of Indian Arbitration Act. The Arbitration Clause in the Memorandum and Articles of Association not only mentions about the differences arising between the company and its members on the construction or the incidence or the consequences of the Articles but also talks about any breach or alleged breach of the Articles or anything relating to any affairs of the company being referred to arbitration. Learned counsel submitted that there are multiple disputes arising between same family members but requires redressal by way of Alternate Dispute Resolution Mechanism by the process of arbitration under the provisions of the Act of 1996. The petitioners sent a legal notice dated 02.03.2017 to the respondents invoking the arbitration jurisdiction and for appointment of Arbitrator to decide the dispute existing between the parties under Clause 53 of the Memorandum and Articles of Association. The respondents replied thereto and denied invocation of arbitration clause. Learned counsel submitted that if there is any breach of the Articles of Association or if there are any differences arising between the shareholders of the company, the matter has to be resolved in view of the arbitration clause mentioned in Clause XV, Article 53 of the Association of the Company. 3. Mr. J.K. Yogi, learned counsel for the respondents, and Mr. Sanjiv Pandey, the respondent no.
3. Mr. J.K. Yogi, learned counsel for the respondents, and Mr. Sanjiv Pandey, the respondent no. 2 present in person, opposed the application raising objection with regard to maintainability of the present application. They argued that this application filed under Section 11(6) of the Act of 1996 is not maintainable because the earlier application filed by the petitioners under Section 8 of the Act of 1996 has already been dismissed by the Company Law Board vide order dated 31.01.2008. Once a judicial authority has taken a decision and that order is subject to challenge in appeal before the Company Judge, present application under Section 11(6) of the Act of 1996 is not maintainable. Although, at the same time, they also argued that the aforesaid appeal under the provisions of the Companies Act, 1956 itself is not maintainable. The petitioners are adopting delaying tactics in not getting the appeal disposed of, which was filed in the year 2008. Present proceedings are nothing but adventurism on the part of Mr. Rajiv Pandey. 4. Relying on the judgment of the Supreme Court in Anil vs. Rajendra - (2015) 2 SCC 583 Mr. Sanjiv Pandey, the respondent no. 2, argued that in view of the ratio of the aforesaid judgment, present application under Section 11(6) of the Act of 1996 is not maintainable as the identical application of the petitioners filed before the Company Law Board has already been rejected and the petitioners would be estopped from filing the present application as the Company Law Board was ceased with the said dispute of arbitration. Mr. Sanjiv Pandey, the respondent no. 2, has also relied on the judgment dated 12th/20th August, 2014 of Bombay High Court in Company Appeal (L) No. 10/2013 - Rakesh Melhotra vs. Rajinder Kumar Malhotra and Others, and argued that therein the Bombay High Court held that disputes in properly brought petition under Sections 397 and 398 read with section 402 of the Companies Act, 1956, are not referable to arbitration. It was further held that the finding of the Company Law Board to the contrary that the disputes were referable to arbitration, is incorrect in law.
It was further held that the finding of the Company Law Board to the contrary that the disputes were referable to arbitration, is incorrect in law. He also relied on another judgment dated 25.08.2008 of the Bombay High Court in Company Appeal No. 32/2007 - Star Metal Forms Pvt. Ltd. vs. Harish Solanki, wherein reliance was placed on the judgment of the Supreme Court in Sukanaya Holdings vs. Jayash H. Pandeya - (2005) 5 SCC 531 . In that case, the judgment of the Company Law Board was upheld, which declined to refer the dispute for adjudication to the Arbitrator. It is argued that the petitioners having submitted to the jurisdiction of the Company Law Board as far back as in 2006, are estopped from approaching this court under Section 11 of the Act of 1996. Present application is nothing but having been filed belatedly is liable to be dismissed. I have given my anxious consideration to rival submissions and perused the material on record. Enormous delay of more than ten years after filing of the petition under sections 397 and 398 of the Companies Act, 1956, before the Company Law Board in the year 2006 by way of Company Petition No.32/2006. The judgment of the Supreme Court in Anil, supra, is squarely applicable to the facts of the present case. In that case too, the order passed by the designate Judge under Section 11 of the Act of 1996, referring the dispute to Arbitrator under Section 11(6) of the Act of 1996, was overturned by the Supreme Court by observing that despite the objection regarding the existence of a clause for arbitration, the order of the civil court that it was well within its jurisdiction to try the suit has become final. The civil court rejected the application filed by the respondent under Section 8(1) of the Act of 1996 by holding that it was made to try the suit, the jurisdiction of the Chief Justice under Section 11(6) of the Act of 1996 cannot be invoked by either party. The principles of res judicata would be attracted in the situation. The Supreme Court held that application filed by the respondent under Section 11(6) of the Act of 1996 was nothing but an abuse of process. The dispute between the parties was subject matter of the suit, which was at the final stage.
The principles of res judicata would be attracted in the situation. The Supreme Court held that application filed by the respondent under Section 11(6) of the Act of 1996 was nothing but an abuse of process. The dispute between the parties was subject matter of the suit, which was at the final stage. In that case the suit was instituted by the partnership firm with some of the respondents as the co-plaintiffs. One of the defendants filed application under Section 8(1) of the Act of 1996, which was opposed by the plaintiffs. The trial court upheld the objection and held that it was within its jurisdiction to try the dispute and therefore was not required under law to refer the same to arbitration. The Supreme Court held that having approached the civil court and having approached the civil court and having opposed the reference to arbitration under Section 8(1) of the Act and the decision of the court in that regard having become final, the respondents cannot invoke jurisdiction under Section 11(6) of the Act; it is hit by the principle of issue estoppel. 5. In the present case, although the facts are somewhat different as the application filed before the Company Law Board under Section 8 was not opposed by the petitioners so as to attract the question of issue estoppel, but it was their own application which was dismissed against which appeal is pending before the Company Law Board. Besides, the present application has been filed with enormous delay of more than a decade after filing of the civil application before the Company Law Board against which appeal is pending before this court, the similar application under Section 11 of the Act of 1996 on the same subject matter cannot be maintained. In the relied judgment of the Bombay High Court in Rakesh Melhotra, supra, one of the question that fell for consideration of the Bombay High Court was whether disputes in properly brought petition under Sections 397 and 398 read with section 402 of the Companies Act, 1956, can be referred to arbitration was answered in negative and it was held that such dispute was not referable. The findings to the contrary recorded were that the disputes were referable to arbitration was held incorrect in law. 6.
The findings to the contrary recorded were that the disputes were referable to arbitration was held incorrect in law. 6. In Star Metal Forms Pvt. Ltd., supra, the Bombay High Court, while relying on the judgment of the Supreme Court in Sukanaya Holdings, supra, held that the nature of dispute brought before the Company Law Board on the allegation of operation and mismanagement, it was also a matter between the members interse. If the dispute is also between members interse that is not covered by Clause 42 of the Articles of Association. That understood, assuming that the said clause is an arbitration agreement for the purpose of Section 2(b) read with section 7 of the Arbitration and Conciliation Act, 1996, such matter cannot be referred to by the court. The Delhi High Court in Ameet Lalchand Shah and Others vs. Rishabh Enterprises and Another - 2017 (4) Arb. L.R. 1 (Delhi) (DB) , has also relied on the judgment of the Supreme Court in Sukanya Holdings Pvt. Ltd., supra. The Supreme Court therein held that where a suit is commenced - "as to a matter" which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. There is no provision in the Act of 1996 for bifurcating the suit in two parts, one to be decided by the arbitral tribunal and other to be decided by the civil court. It is in this spirit that the Company Law Board in the present case rejected the application under Section 8 filed by the petitioners. Following observations were made by the Company Law Board in Para 20 and 21 of the order dated 31.01.2008, while rejecting the application:- "20. It is settled law that when an application is filed under section 8 of the Arbitration Act, judicial authority is entitled to, has to and is bound to decide the jurisdictional issue raised before it before making or declining to make a reference to arbitration. In other words, it has to decide whether there is a valid agreement and whether the dispute that is sought to be raised before it is covered by arbitration clause.
In other words, it has to decide whether there is a valid agreement and whether the dispute that is sought to be raised before it is covered by arbitration clause. Over by years the Company Law Board has evolved the test to determine as to whether the matter in a petition under Sections 397 and 398 is to be relegated to arbitration or not, the test being whether the allegations of oppression/mismanagement contained in the petition can be adjudicated without reference to the terms of the arbitration agreement, if it can be, then, the question of referring the matter to arbitration does not arise even if assuming that there is an arbitration agreement and the agreement covers the same matter. The provisions contained in Sections 397 to 409 of the Act constitute a code by themselves and are not subject to other provisions of the Act. Under Sections 397 and 398 of the Act, the claim to relief rests not on any contract but on statutory right. Arbitrator cannot grant relief of the nature specified in Sections 402 or 403 of the Act. The powers conferred by Sections 397 to 402 of the Act cannot be taken away by agreement whether contained in the Articles or otherwise, the said provisions are an alternative to winding up proceedings and deal with public interest, the representative cause of shareholders and derivative cause of company. 21. It is true that the provisions of section 8 of the Arbitration Act are mandatory. Sub-section (1) of Section 8 of the 1996 Act provides that a judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. Therefore, for application of Section 8, it is absolutely essential that there should be an arbitration agreement between the parties. Sub section (2) of Section 8 of 1996 Act provides that the application referred to in Sub section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof." 7.
Therefore, for application of Section 8, it is absolutely essential that there should be an arbitration agreement between the parties. Sub section (2) of Section 8 of 1996 Act provides that the application referred to in Sub section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof." 7. Apart from above, the additional ground given by the Company Law Board rejecting the application is that the petitioner failed to make compliance of sub-section (2) of Section 8 of the Act of 1996, which provides that the application referred to subsection (1) thereof shall not be entertained unless it is enclosed by the original arbitration agreement or duly certified copy thereof. Reference to the order of the Company Law Board, quoted above, is made only for limited purpose for showing that the petitioner has already submitted to the jurisdiction of the Company Law Board, which has declined reference to arbitration, therefore, on the same subject matter another application under Section 11(6) of the Act of 1996 cannot be entertained. This however should not be construed as rejection of correctness or otherwise of the merits of that order, which is subject matter of appeal before the learned Company Judge but the very fact that the present application has been filed with enormous delay of more than ten years also makes this application liable to be rejected. In the result, the application fails and is hereby dismissed.