Kanthi Narahari - (1.) THE present application is filed under section 8 of the Arbitration and Conciliation Act, 1996, praying this Bench to refer the parties to the arbitration as per clause 20 of the joint venture agreement and dismiss the petition with costs. Shri Zal Andhyarjuna, learned counsel appearing for the applicant submitted that the applicant is respondent No. 5 to the company petition. Respondents Nos. 1, 2 and 3 filed the petition being C.P. No. 48 of 2011, inter alia, praying the main relief as per paragraph 8 of the petition. It is submitted that the said petition is misconceived and not maintainable as this Bench has no jurisdiction to entertain and hear the said company petition for the reasons as stated hereunder. It is submitted that the applicant, respondents Nos. 1, 2 and 4 had entered into a joint venture agreement dated September 20, 2007. The joint venture agreement also conferred various rights on the parties including specific representation on the board of directors of respondent No. 4, right of first refusal, rights relating to further issue of shares, affirmative votes in relation to certain specific matters etc. It is submitted that respondents Nos. 1 and 2 reneged on their various obligations under the joint venture agreement. Pursuant thereto, the applicant was constrained to terminate the joint venture agreement vide its letter dated January 13, 2011. Consequent to the termination of the joint venture agreement, the special rights conferred on respondents Nos. 1 and 2 also came to an end. Therefore, a meeting of the board of directors of respondent No. 4 was convened on February 22, 2011, inter alia, to consider and discuss convening of an extraordinary general meeting to consider adoption of Table A of Schedule I of the Companies Act, 1956 as the new articles of association of respondent No. 4 and further to consider and discuss the reconstitution of the board of directors of respondent No. 4 by removal of respondents Nos. 1 and 3 from the board of directors of respondent No. 4. It is submitted that on February 24, 2011, an extraordinary general meeting of respondent No. 4 was held in order to consider and adopt resolutions, inter alia, in relation to the adoption of Table A of Schedule I of the Companies Act, 1956 as the new articles of association of respondent No. 4 and the reconstitution of the board of directors of respondent No. 4 by removal of respondents Nos. 1 and 3 from the board of directors of respondent No. 4. It is pertinent to note that the explanatory note in relation to the aforementioned items which was circulated with the notice of the said extraordinary general meeting dated February 23 2011. At the said extraordinary general meeting dated February 23, 2011, both the aforementioned resolutions were adopted by respondent No. 4, i.e., the resolution to adopt Table A of Schedule I of the Companies Act, 1956 as the new articles of association of respondent No. 4 and resolution to reconstitute the board of directors of respondent No. 4 by removal of respondents Nos. 1 and 3 from the board of directors of respondent No. 4. From the factual position it is clear that the adoption of new articles of association and removal of respondents Nos. 1 and 3 from the board of directors of respondent No. 4, is a direct outcome of the termination of the joint venture agreement by the applicant. In fact, respondents Nos. 1 to 3, have specifically sought a declaration from this hon'ble Board on the validity of the joint venture agreement. This hon'ble Board has no jurisdiction to entertain the question of the validity of the termination of the joint venture agreement. As per clause 20 of the joint venture agreement, any disputes and differences which arise with the interpretation or implementation of the joint venture agreement such disputes have to be resolved by reference to arbitration as per the provisions of the said clause 20. It is submitted that the said clause 20 of the joint venture agreement was also incorporated as article 59 of the previous articles of association of respondent No. 4, which respondents Nos. 1 to 3 allege, are binding on the parties. In the light thereof, the applicant states and submits that this hon'ble Board does not have the jurisdiction to entertain the said petition and to grant any of the reliefs as prayed for by respondents Nos. 1 to 3, therefore this hon'ble Board ought to refer the parties to arbitration as specified and agreed to by the parties under clause 20 of the joint venture agreement. It is submitted that the total number of members of respondent No. 4 is 26 members. Respondents Nos. 1 and 2 constitute 2 in number out of total 26 members, in view thereof they do not meet the eligibility criteria as specified under section 399 of the Companies Act for filing the petition under sections 397 and 398. Hence, the petition is liable to be dismissed on this ground alone. The applicant states and submits that they have not filed their first statement in relation to the said petition before filing the present application. Learned counsel in support of his contention relied upon a decision of the Principal Bench reported in Naveen Kedia v. Chennai Power Generation Ltd. : [1999] 95 Comp Cas 640. The Company Law Board is of the view that (page 652): However, after coming into force of the Arbitration and Conciliation Act, 1996, the legal position has changed, more particularly with reference to foreign arbitration. Now it is mandatory, by virtue of section 45 of this Act, that a judicial body will have to refer the parties to arbitration once it is seized of an action in respect of which the parties have made an agreement for arbitration in which the convention in the First Schedule to the Act applied (Foreign Arbitration). The ingredients of this section are: a judicial authority should be seized of an action in the matter of which the parties have made an agreement for arbitration; one of the parties should make a request for referring the parties to arbitration and that the judicial body does not find that the said agreement is null and void, inoperative or incapable of being performed. The Company Law Board is a judicial authority and this fact is not controverted. It has been seized of a matter in which, as elaborated earlier, there is an agreement between the parties for arbitration. The petitioners did not advance any arguments to convince us that the agreement is null and void, inoperative or incapable of being performed. They have only taken a stand, in reply to the application, that, referring the matter to arbitration would be expensive, time consuming and would require transfer of documents from India to London for production as evidence. This stand, according to us, would not make the agreement inoperative or incapable of being performed. Thus, all the ingredients of section 45 of the Arbitration and Conciliation Act, 1996 are present. Once it is so, we feel that there is no further scope for us to take into consideration the arguments of Shri Singh about the statutory rights of the shareholders to move the Company Law Board, and that a specially constituted Tribunal cannot abdicate its jurisdiction, etc. We have to do what the law mandates us to do. Section 45 requires us to refer the parties to arbitration and we have no discretion in this matter. In view of the above facts and circumstances, learned counsel for the applicant prayed this Bench to refer the parties to arbitration by dismissing the petition.
(2.) THE respondents/petitioners filed their reply to the application. Shri Birendra Saraf, learned counsel for the respondents submitted that the present application has been filed by the applicant mala fide seeking orders from this Bench that the parties be referred to arbitration and that the petition be dismissed. The applicants are aware that they do not have any defence on merits and are therefore filing such applications to delay the matter on false technical objections. It is submitted that the parties herein cannot be referred to arbitration for inter alia on the following reasons: (a) A scope of a company petition filed under sections 397 and 398 of the Companies Act, 1956 is distinct from the scope of an arbitration clause. Reliefs claimed in the present company petition cannot be granted by an arbitrator and can be granted by this hon'ble Board alone by virtue of sections 397, 398, 402 and 403 of the Companies Act, 1956. (b) A prima facie case of oppression and mismanagement has been made out by the petitioners against the respondents. The illegal acts of the applicant in terms of the petitioners and TBIL as stated in the company petition include illegally amending the articles of association and memorandum of association of TBIL, violating the articles of association and memorandum of association, illegally removing the directors representing the petitioners, illegally attempting to shift the registered office of the company, giving short and illegal notices to the board members represented by the petitioners and illegally proposing to transfer the shares of TBIL. The aforesaid acts amount to oppression and mismanagement and therefore, this hon'ble Board alone has the jurisdiction to deal with the same especially in view of the settled law that parties cannot oust the statutory jurisdiction of this hon'ble Board. (c) It is settled law that unless all the parties to the company petition are parties to the arbitration agreement, an application under section 8 of the Arbitration and Conciliation Act, 1996 is not maintainable. In the present case, the arbitration clause is in the Joint Venture Agreement dated September 20, 2007 and petitioner No. 3 who has been illegally removed from the directorship of TBIL, is not a signatory to the same. Further, all the respondents who are guilty of having committed gross acts of oppression and mismanagement are also not parties to the arbitration agreement. Hence, there is no question of referring the parties herein to arbitration. (d) It is settled law that there can be no bifurcation of subject -matter between the Company Law Board and the arbitrator. Even in the case of partial coverage of disputes by the agreement, the parties cannot go for arbitration. Therefore, where issues related to oppression and mismanagement are also to be decided the subject -matter of the company petition cannot be split between the hon'ble Board and the arbitrator and the reference to arbitration ought to be rejected. (e) It is settled law that there cannot be splitting of cause of action and splitting of parties in case all the parties to the company petition are not parties to the arbitration agreement. Hence, in view of the aforesaid there cannot even be a situation where some of the parties are referred to arbitration and the others not. In the present case, all the parties are not party to the arbitration agreement, therefore, the present application ought to be dismissed in limine. It is submitted that there was a clear understanding between the petitioners and the respondents that though respondent No. 4 incorporated as a company was in essence, a quasi partnership and had preemptive rights in the business, if the other partner was desirous of exiting and both the partners had a legitimate expectation to be involved in the management of the company. The clauses of the joint venture agreement were incorporated in the articles of association of respondent No. 4 company which is binding upon the shareholders. The purported termination of joint venture C.A. No. 123 of 2011 in C.P. No. 48 of 2011 agreement is complete disregard to the contract and the terms of the joint venture agreement on the false grounds that the shareholding of respondents Nos. 1 and 2 had fallen below 10 per cent. The respondents have communicated to the applicant and the other respondents stating that the purported unilateral terminal of the joint venture agreement was illegal and in violation of the terms of the joint venture agreement. The respondents illegally amended the articles of respondent No. 4 company which is further act of oppression of the minority share holder and also removal of directors representing respondents Nos. 1, 2 and 3 herein by passing invalid resolutions is illegal. Under article 19.6.2 of the joint venture agreement it has been expressly provided that the right of 1st refusal provided in the joint venture agreement even survives the termination of the agreement. It is submitted that the extraordinary general meeting dated February 24, 2011 was illegally held with a short notice of a single day and for discussion of agendas which were in gross oppression of the rights of the minority shareholders of respondent No. 4 as more particularly stated in the company petition. It is settled law that the Company Law Board has vide powers under sections 397 and 398 and that by virtue thereof this Bench may pass any order which would affect the company's affairs including an order on the validity of the termination of the joint venture agreement. So far as the total number of members of respondent No. 4 is concerned at illegal extraordinary general meeting on February 24, 2011 one share each was purportedly allotted by circular resolution to 20 individuals. Out of the said 20 individuals, one individual is a current employee of respondent No. 4, another individual an ex -employee, another individual the relative of the aforesaid current employee. The purported allotment of shares is illegal and an afterthought made with the sole intent of oppressing respondents Nos. 1 to 3 herein and as an obvious and wrongful attempt to defeat a company petition under sections 397 and 398 of the Companies Act. In view of the reasons as stated, the application is not maintainable and liable to be dismissed. In support of the case learned counsel relied upon the following decisions: (i) In the matter of Manavendra Chitnis v. Leela Chitnis Studios P. Ltd. : [1985] 58 Comp Cas 113 (Bom), it is held (page 120): "In this case, it is an admitted position that the award has been impeached and it is not urged by the applicants that this impeachment is not on sufficient ground, and not in an appropriate proceeding. This must detract from Mr. Zaiwalla's argument as to the effect of the said award. Then again, considering the ratio laid down in the cases cited by Mr. Bhat, it is abundantly clear that 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. On the other hand, the 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 powers such as are conferred on the court, such as section 402 of the Companies Act. (ii) In the matter of Premier Automobiles Ltd. v. Fiat India P. Ltd. : [2007] 137 Comp Cas 737 (CLB). It is of the view that (page 741): "Therefore, when there is no commonality of parties and when many allegations in the petition are not traceable or related to matters covered under arbitration agreement and it can be examined without reference to any of these agreements the question of relegating the parties to arbitration does not arise and accordingly, the application... is dismissed. (iii) In the matter of Dr. G.L. Purohit v. Dr. S.S. Agarwal : [2011] 163 Comp Cas 205 (CLB). It is of the view that (page 231): "Commonality of the subject -matter is a pre -requisite to invoke/apply section 8. It is noted that the subject -matter of the company petition is not the same as that of the memorandum of understanding between respondent No. 2 and petitioner No. 1 ...The arbitrator cannot grant relief of the nature specified in section 402 or 403 of the Act. (iv) In the matter of Sumitomo Corporation v. CDC Financial Services (Mauritius) Ltd. : [2008] 142 Comp Cas 114: AIR 2008 SC 1594 paragraph 11. (v) In the matter of Sukanya Holdings P. Ltd. v. Jayesh H. Pandya, : AIR 2003 SC 2252 paragraph 15. It is held (page 2255): "The relevant language used in section 8 is -'in a matter which is the subject -matter of an arbitration agreement'. Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of 'a matter' which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, 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. The words 'a matter' indicates entire subject -matter of the suit should be subject to arbitration agreement. Heard, learned counsel appearing for the respective parties, perused pleadings documents and citations relied upon by them. After analysing the pleadings, the only issue which is felt for consideration is that whether any case is made out by the applicant to refer the parties/petition to arbitration?
(3.) NOW I deal with the issue: The petitioners have filed the above petition seeking various reliefs before this Bench. On the basis of the pleadings as made in the said company petition, the root cause of the dispute between the parties mainly arises based on the joint venture agreement dated September 29, 2007 as referred to in paragraph 14 of the petition. However, the said joint venture agreement had been terminated by a letter dated January 13, 2011 by the applicant herein and as acknowledged by the petitioner by their letter dated January 14, 2011.;