NAVEEN KEDIA Vs. CHENNAI POWER GENERATION LIMITED

JUDGEMENT

(1.) THE petitioners hereinabove, have filed this petition under Section 397/398 of the Companies Act (Act) alleging acts of oppression and mismanagement in the affairs of Chennai Power Corporation Ltd. (the company). THEy also filed an application for interim reliefs. When the application was taken up for hearing on April 13, 1998, the respondents filed an application under the Arbitration and Conciliation Act, 1996, praying for referring the matter to arbitration on the ground that the substantial matter covered in the petition arises out of an agreement between the parties in which there is a provision for settling the disputes between the parties through arbitration under the rules of the London Court of International Arbitration.

(2.) Since the matter of arbitration was raised, we thought it fit first to hear the application of the respondents. Shri Sarkar, senior advocate, appearing for the respondents, initiating his arguments submitted that, the disputes raised in the petition are private disputes between two shareholders' groups and not in any way related to the affairs of the company to invoke the provisions of Section 397/398 of the Companies Act, According to him, the disputes between the parties have arisen out of and in connection with an agreement dated October 14, 1996 (principal agreement), as modified by a supplemental agreement dated July 7, 1997. The principal agreement very specifically provides in Clause 26 that any dispute arising out of or in connection with the agreement shall be finally resolved by arbitration under the rules of the London Court of International Arbitration. Since the main allegation relates to alleged breach of contractual terms, recourse to arbitration alone is permissible and cannot be enforced through a petition under Section 397/398. He pointed out to Section 45 of the Arbitration and Conciliation Act of 1996, according to which a judicial authority shall have to, at the request of one of the parties, refer the parties to arbitration when such a judicial authority is seized of an action in a matter in respect of which the parties have made an agreement for an arbitration. According to him the foundation of the petition, is that respondents Nos. 2 and 3 have not provided to the company certain funds as agreed to between the parties as per the principal and supplemental agreements. The main relief sought also relates to a direction being given to respondents Nos. 2 and 5 to forthwith fulfil their obligation of providing the funds, more particularly of US $ 14 million as agreed to be advanced as per the principal agreement. Therefore, according to him, since the CLB is seized of a matter on which there is an arbitration agreement between the parties, the CLB is bound to refer the matter to arbitration as per Section 45 of the Arbitration and Conciliation Act, 1996. In this connection, he referred to the decision of the Supreme Court in Svenska Handelsbanken v. Indian Charge Chrome Ltd. [1994] 2 SCC 155 in which the court held, with reference to the Foreign Awards (Recognition and Enforcement) Act, 1961, that the right to foreign arbitration is an indefeasible right in which the court does not have any discretion.

(3.) SHRI V. P. Singh, senior advocate, appearing for the petitioners stated that, before we consider the prayer of the applicant for referring the parties to arbitration, we should decide whether there is an arbitration agreement in existence after the supplemental agreement was entered into and whether the matters complained of under Section 397/398 could be referred to arbitration in view of the fact that the relief as could be provided under these sections cannot be granted by the arbitrator. According to him, the Company Law Board has been given the exclusive jurisdiction in the matter of allegations relating to oppression and mismanagement in the affairs of a company. The shareholders have the statutory right to move the CLB in such cases. Since the jurisdiction of the CLB under these sections is exclusive and the jurisdiction of the civil court has been ousted, the matter complained of before the CLB cannot be relegated to arbitration. Further, according to him, the nature of action under Section 397/398 is a derivative action and not an inter se dispute between the shareholders. Such a right cannot be enforced de hors the statute which confers the right and provides for specific relief. In other words, according to him, the shareholders, by an agreement between themselves, cannot create a right in their favour and vest a private forum with powers to adjudicate upon such a derivative claim, de hors the statutory tribunal. He further submitted that the powers conferred on the CLB under sections 402 to 407, which are in aid of proceedings under Section 397/398, are of the widest amplitude, conferred on the CLB to bring to an end the matters complained of and that these powers are in the domain of public policy. Dealing with his arguments that the CLB has exclusive jurisdiction in the matter of oppression and mismanagement as enjoined under Section 397/398 of the Companies Act, he submitted that on the vesting of jurisdiction on the CLB, the jurisdiction of the civil court should be inferred to have been ousted. For this proposition, he relied on Union of India v. Tara Chand Gupta, AIR 1971 SC 1558, in which the Supreme Court, after considering various judgments in paragraph 22, laid down that ousting of jurisdiction of the civil courts in favour of the special tribunal is inferred where the statute gives finality to the order of the tribunal on which it confers jurisdiction and provides for adequate remedy to do what the court would normally do in such a proceeding before it According to SHRI Singh, under Section 397/398, the statute has provided for finality to the orders of the Company Law Board by vesting vast powers. This being the position, he submitted that, when the parties cannot approach even a civil court in respect of matters under Section 397/398, the parties cannot, by a private agreement confer jurisdiction on a tribunal of their own choice and oust the jurisdiction of the Company Law Board which is a special tribunal created by the statute. Such an act would be contrary to public policy and the law. On the proposition that the jurisdiction of a special tribunal cannot be ousted by asking for referring the parties for arbitration, he relied on Natraj Studio Private Ltd. v. Navrang Studios, AIR 1981 SC 537, in which the Supreme Court held that public policy requires that contract to the contrary which nullifies the rights conferred on tenants by the Bombay Rent Control Act cannot be permitted and thus the arbitration agreement between the parties whose rights are regulated by this Act cannot be recognised by a court of law.