BIALETTI INDUSTRIES S.P.A. Vs. RACHIT SURESH GANGAR

JUDGEMENT

(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:

(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.