Decided on December 19,2016



V.S.R. Avadhani, Member - (1.)The Company Petition is filed under Sections 397 and 398 read with Sections 402, 403 and 406 of the Companies Act, 1956 for diverse reliefs on the grounds of oppression and mismanagement, among the other main reliefs namely, for removal of the Respondent No. 4 from the Board of Directors of the Company, to declare allotment of 31000 equity shares on 12.4.2011 as void ab initio and declare the For 32 filed with the ROC on various dates and to declare that any decision taken by the Respondents 2 to 4 in any meeting of the Board without notice to and participation of the Petitioners has null and void.
(i) The Company was incorporated on 7.12.1993 and after withdrawal of some of the promoters the company is continued with 4 persons-petitioners and the Respondents. Both the groups maintain 50:50 holding in the capital of the Company. In course of time, the terms between the groups became scrawny and the petitioners are hurling Accusations against the Respondents' group. The situation has become aggravated with the Respondents' group inducting the Respondent No. 4 as Additional Director, stated to be without any resolution of the Board on 11.4.2011; and on 12.4.2011 the Respondents have allotted 31,000 shares to their family members without any obtaining authority from the Board and without offering 50% of the enhanced capital to the Petitioners' groups. It is alleged, this was with mala fide intention of reducing the Petitioners' group to minority.

(ii) However, some wisdom might have prevailed on both the groups that resulted in their entering into a Memorandum of Understanding (MOU) on 10.4.2011 and appointing Arbitrator Sri K.M. Mittal to whom the Petitioner No. 2 is said to have given his undated resignation letter and on the basis of that letter, the Petitioner No. 2 was removed from the Board and the information was filed with ROC on 22.8.2011. It is alleged that the proceedings of the Arbitrators were held in a very casual manner and no minutes were drawn by them. In pursuance of arbitration clause incorporated in the MOU the Respondent No. 2 applied to the High Court for appointment of Arbitrator and with the consent of both parties, he High Court appointed Shri Justice U.K. Dhaon (Retd) on 10.9.2013. The Petitioner No. 1 also filed a civil suit in Lucknow questioning the legality and enforceability of the MOU and later both the Petitioners filed the present Company Petition claiming the relief on the complaint of acts of oppression and mismanagement by the Respondents' group.

(iii) The major charges leveled against the Respondents to substantiate the grounds urged in the Company Petition are indicated in the forthcoming paragraphs of the Order, wherever they are relevant. The Respondents flatly deny every allegation and have taken serious objections on the sustainability of the Petition on the grounds that: (i) The Petitioners have submitted to the jurisdiction of Arbitrator and the disputes are already before the Arbitrator appointed by the High Court even prior to the filing of this Petition: (ii) that a civil suit is also pending at the instance of the Petitioner No. 1 in which almost all the grounds taken in the Petition are canvassed and this Petition is therefore affected by sub-judice; and; (iii) The grounds alleged in the Petition said to be acts of oppression and mismanagement, in fact and in law does not constitute such acts sufficient to order winding up of the Company.

(iv) Having heard the extensive arguments addressed at the bar and after conscientiously verifying the facts and circumstances present in the case as per the documents filed by both sides, we adjudicate upon the disputes as follows:

II. Question No. 1 Whether the Company Petition is not maintainable in view of pending Arbitration before Shri Justice U.K. Dhaon (Retd)?

1. We shall examine the above question from two points of view, namely-

(i) What is the effect of MOU; and

(ii) What is the impact of constitution of Arbitral Tribunal under Section 11 of the Arbitration and Conciliation Act 1996 on the Company Petition?

(i) There is no dispute about the execution of the MOU between the two groups. The said document is at page 31 of the Respondents' Reply paper Book. In the Petition the Petitioners have admitted at para (19) that the decision on the appointment of Arbitrator is awaited. The present Petition is filed on 13.9.2012 before the Company Law Board whereas the High Court appointed the Arbitrator on 10.9.2012 itself as can be seen from the order placed at page 43 of the Reply.

(ii) The contention of the Respondents is that in view of the dispute already referred to the Arbitrator on 10.9.2012, the present petition which was subsequently filed is not maintainable. The Petitioners, on the other hand, contend in favour of maintainability of the Petition on two grounds: (1) the MOU containing the Arbitration Clause is not binding on the Petitioner No. 1, who is not a party to the MOU; and (2) the Arbitral Tribunal is not competent to order liquidation on the basis of acts of oppression and mismanagement. To buttress that contention, the Ld. Counsel for the Petitioner has relied upon the certain judicial precedents from the CLB which we will refer during course of our discussion in the forthcoming paragraphs.

(iii) The binding nature of the MOU on the Petitioner No. 1 is concerned, it is on record that the Petitioner No. 1 has filed a civil suit No. 972 of 2012 before the Civil Judge (Senior Division), Lucknow, (Vide page 71 of Reply). The Petitioner No. 1 filed that suit against three defendants namely Dr. Harish Kumar Agarwal. Smt. Shubhra Agarwal (the Respondents 2 and 3 herein) and Sri Suresh Singh Dhapola, the Petitioner No. 2 in the Company Petition. In various paragraphs of the plaint, the Petitioner No. 1 namely, Smt. Hema Dhapola has averred that she is unaware of the settlement between the defendants 1 and 2 on one hand and the 3rd defendant on the other; that the MOU is not legal as it was not registered. Most importantly at para 20 of the plaint, she has made the following averment to impeach the validity of the MOU dated 10.4.2011.

"that the memorandum of understanding dated 10.4.2011 (tenth April two thousand eleven) was executed by the defendant No. 1 (one) by playing fraud upon the defendant No. 3 (three) and by adopting and using undue influence and coercion upon the defendant No. 3 (three) and as such the aforesaid memorandum of understanding has got no legal sanctity in the eyes of law."

(2.)She has also referred to the appointment of Mr. R.K. Mittal and Dr. K.M. Singh as arbitrators (who have subsequently withdrawn by their proceeding dated 27.5.2012, at page 37 of the Reply) and pleaded further that the MOU is nullity as it cannot be executed at the instance only two directors more so when the subject matter of the memorandum of understanding is related with the private limited company which was having four Directors. The Petitioner's case is that they have not agreed to appoint Dr. K.M. Singh as second arbitrator and that change was made in the MOU by the Respondent unilaterally. However, it seems that such an objection is not raised when they have reported no objection before [the High Court for the appointment of Arbitrator on the ground that the MOU is not enforceable on the ground of material alteration. The reliefs, she claimed in the suit are (i) to declare the MOU dated 10.4.2011 to be null and void and un-enforceable and (ii) a permanent injunction against the defendants 1 and 2 from interfering with the management of the Hospital owned by the Company.
(v) A plain reading of the plaint referred above shows that the Petitioner No. 2 was seeking the Civil Court to avoid the MOU and challenging the Arbitration clause contained therein. She is showing the 2nd Petitioner herein as a defendant in that suit. That means, there is adverse interest between the Petitioners 1 and 2, in terms of the pleadings in the plaint. It is well known principle of law that those who are having common interest in the cause of action can maintain a single proceeding; and those who have conflicting interest cannot join as petitioners. In the plaint and in the company petition, the petitioners are disputing the validity of MOU and also the Arbitration. The Petitioner No. 2 who is a signatory to the MOU never filed a civil suit questioning the validity and enforceability of the MOU-On the other hand, the Petitioner No. 1 filed that suit tailing the grounds to impugned the validity of MOU which ought to have been taken by the Petitioner No. 2. This indicates that both the Petitioners are having a common object of defeating the terms incorporated in the MOU and therefore, the argument that because the Petitioner No. 1 is not signatory to the MOU and so it is not binding on her, cannot be accepted.

(vi) For examining the effect of MOU on the present dispute in the Company Petition, invariably, we have to examine the circumstances under which the parties have entered into the MOU. The preamble of the MOU reads:

"Both the parties have since decided to work separately independent of each and for this purpose entered a mutual understanding to this effect in their meeting held on 34.2.2011 which is annexed as per Annexure-A

Both the parties have in order to set off any doubts in order to carry out the smooth transition decided to enter into this formal memorandum of understanding and that both the parties agree to abide by the mutually decided terms and stipulations mentioned herein under: Both the parties hereby agree and accept Shri R.K. Mittal, Retd IAS as the sole arbitrator whose decision shall be binding on both of us"

(vii) In the MOU the following are the important terms incorporated by the parties;

1. Petitioners shall take Niryan Social Welfare Organization exclusively and the Respondents shall take Niryan Hospitals, the company, exclusively

2. The Petitioners and their associates shall relinquish and transfer their enquiry in favour of the Respondent and the Respondents shall transfer their share in the ownership rights in the property in the land and building at Hira Nagar, Haldwani in favour the Petitioners;

3. Both shall cooperate with each other for creating liability and create separate identities for their organization and company respectively including the name, before final separation or resigning within a stipulated time.

The un-allotted share application money standing in the Books of Company in the names of 3 persons shall be settled by the Petitioners. 4. Both parties after honoring their above mentioned commitments confirm no other balance due on each other/their respective institutions and shall also confirm that thereafter do not have any grievances against each others' company or organization.

5. In the event of any failure of any of the parties in complying of the terms and conditions contained in the MOU the matter shall be referred to an arbitrator.

"(a) As to whether the disputes in a petition properly brought under Sections 397 and 398 read with section 402 of the Companies Act, 1956 can be referred to arbitration, the answer is no, subject to the caveat that I have noted regarding a mala fide, vexatious or oppressive petition and one that is merely 'dressing up' to avoid an arbitration clause"

(xii) In the second reported decision, it is clear from the facts of the case that during pendency of Petition in the Civil Court for making the award passed by the arbitrator as decree; and when a petition was also pending in the court for setting it aside at the instance of opposite parties, under the provisions of the Arbitration Act, 1940, the other group filed Company Petition and sought for stay of proceedings in the civil court. It was argued before the High Court in the Company Petition that even if there is award that has to be ignored as the company dispute is not arbitrable. The High Court held that:

"It is abundantly clear that merely because there is an arbitration clause or arbitration proceeding or for mat matter an award, the Court's jurisdiction under sec. 397 and 398 cannot stand fettered. On the other hand, 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 subject matter of arbitration, for an arbitrator can have no powers such as conferred on the court, such as sec. 402 of the Companies Act..."

(3.)That is, in the first case, matter was sought to be referred to Arbitrator and in the second case, Arbitrators' award was delivered and pending in the Civil Court for being declared as decree of court. In Booz Allen and Hamilton Inc vs. SBI Home Finance Limited and Others, 2011 5 SCC 532, the Supreme Court while dealing with an application under Sec. 8 of the Arbitration and Conciliation Act, 1996 laid down certain test to refer the dispute pending in civil court to arbitration. Those tests include whether the reliefs sought in the suit are those that can be adjudicated and granted in arbitration;

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