Das Lagerway Wind Turbines Ltd. v. Cynosure Investments (P) Ltd.

1. This Civil Revision Petition is filed against the order passed by the Company Law Board, Additional Principal Bench, Chennai, dated 17.12.2002 made in C.A No. 99 of 2002 in C.P No. 55 of 2002 dismissing the Petition filed by the revision petitioner herein under Section 8 of the Arbitration and Conciliation Act, 1996 to refer to matter for Arbitration.

2. The Company Petition No. 55 of 2002 was filed before the Company Law Board by the respondent herein in their capacity as shareholder of the petitioner-company. The main grievance of the respondent is that the revision petitioner-company had conspired to take away the assets, business and benefits belonging to the company and parked them with the third parties and a gigantic fraud was played by Mr. V.R Raghunathan and others who are parties to the main Petition. So many allegations of fraud have been described by the respondent herein in the typed set at several pages. According to them loss has also been caused to the Government of India as well as the shareholders of the company. Since we are not concerned with the said allegations of fraud in this Revision Petition, the same are not necessary for the disposal of this Revision.

3. Pending the Company Petition, the revision petitioner filed C.A No. 99 of 2002 under Section 8 of the Arbitration and Conciliation Act, 1996. The learned Additional Principal Bench of the Company Law Board, Chennai, on a detailed consideration of the matter, dismissed the said Application. Aggrieved over the same, the present C.R.P is filed.

4. Learned counsel for the revision petitioner contended that the respondent-Cynosure Investments Pvt. Ltd. (CIPL) filed the Company Petition before the Company Law Board under Sections 397, 398, 402 and 403 of the Companies Act on allegations of oppressions and mismanagement of the revision petitioner-company (DLWL) claiming various reliefs including reconstitution of the Board of Directors, investigation into the affairs of the Company and restoration of funds allegedly diverted from the company, etc. The basis for maintaining the Company Petition was the subscription agreement dated 16.2.1996, by which CIPL became a share holder in DLWL. However, by a share sale agreement during December 2000, CIPL had divested itself of all its rights and status as a shareholder and therefore the very subscription agreement under which the right to maintain the Company Petition was available got extinguished. Therefore, DIWL contended that the very existence of the subscription agreement dated 16.2.1996 will have to be decided by referring the matter to arbitration under the Arbitration Clause enumerated in Article 11 of the Subscription Agreement dated 16.2.1996

5. Learned counsel for the revision petitioner argued that the basis for the Petition before the Company Law Board is the subscription agreement dated 16.2.1996 which only gives right to CIPL as a share holder of DLWL, but this agreement was deliberately not filed by CIPL before the Company Law Board and it was only DLWL which brought the said agreement to the notice of the CLB. As seen from agreement Clause 13 of the said agreement CIPL has argued that it will not have any claim whatsoever against DLWL and its directors either in their official capacity or in their personal capacity in respect of the subscription agreement dated 16.2.1996 Therefore, the main Company Petition itself is not maintainable. Therefore, DIWL has filed the Petition under Section 8 of the Artbitration Act to refer the matter to arbitration to decide the existence and validity of the subscription agreement dated 16.2.1996 under Article 11 of the said agreement.

6. Learned counsel for the revision petitioner further contended that the parties to the subscription agreement dated 16.2.1996 are DLWL, CIPL and Mr. V.R Raghunathan, Managing Director of DLWL. Mr. V.R Raghunathan has signed the subscription agreement both as Managing Director for DLWL as well as in his personal capacity. The parties to the share sale agreement are CIPL and Mr. V.R Raghunathan and under the said agreement CIPL has agreed not to have any claim against DLWL and Mr. V.R Raghunathan either in case of the revision petitioner is that CIPL and Mr. V.R Raghunathan are common parties in both agreements and any agreement or terms agreed upon by both parties touching upon both the agreements are binding on CIPL. The case of CIPL that when DLWL alleged that the very subscription agreement dated 16.2.1996 is no longer in existence there is no question of referring the matter to arbitration cannot stand in view of Section 16(1)(a) of the Arbitration and Conciliation Act, 1996 which states that the objection with regard to the existence or validity of the arbitration agreement and for this purpose an Arbitration Clause which forms part of the contract shall be treated as an agreement independent of the terms of the contract. This is further strengthened by sub-section (b) which states that even if the contract is held to be null and void, it will not invalidate the Arbitration Clause. Learned counsel for the revision petitioner contended that the Company Law Board on a misconception of the case raised before it dismissed the Application. Learned counsel also relied upon the judgment of the Apex Court in Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums., 2003 (3) CTC 438: 2003 (6) SCC 503, wherein it has been held that objection regarding the applicability of an arbitration clause in the agreement to the facts of the case which goes to the root of jurisdiction must be raised before the Arbitrator for decision.

7. However, learned counsel for the respondent submitted that the petitioner and the respondent are the only parties to the Application. The very prayer is to refer the parties to arbitration under terms of Clause 11 of the subscription agreement dated 16.2.1996 But the Application refers to another agreement made in December 2000 between one V.R Raghunathan and the respondent herein. But the said V.R Raghunathan is not a party to C.A No. 99 of 2002 which is the Application in which the impugned order has been passed. The counter to the said Application was filed by the respondent herein wherein it was made clear that the respondent is not seeking to enforce the rights under the agreement dated 16.2.1996 However, the revision petitioner in the Company Application has stated that the existence and validity of the subscription agreement dated 16.2.1996 has to be first established. But this plea is made to show that the respondent is not a shareholder. According to the respondent, if it is not a shareholder, the petitioner has to argue the matter in the main Company Petition questioning the locus standi of the petitioner and that cannot give a cause to invoke Section 8 of the Arbitration Act. On the contrary, the petitioner disowned the subscription agreement dated 16.2.1996 The said V.R Raghunathan himself has denied the validity of the subscription agreement as seen from page 19 of the second typed set of papers.

8. It is further argued by the learned counsel for the respondent that as seen from Section 8 of the Arbitration Act, the judicial authority is concerned with—

(a) the existence of the arbitration agreement, and

(b) whether all the parties to the legal proceedings pending before the judicial authority are parties to the arbitration agreement, and

(c) whether the subject matter of the legal proceedings and subject matter of the arbitration agreement are on and the same.

9. However, the revision petitioner has not satisfied even one of the above conditions. The revision petitioner in page 47 of the typed set has stated that the subscription agreement itself is not valid. The same stand has been taken in pages 19 to 21 of the second typed set of papers. Hence there is no arbitration agreement. The second condition namely whether all parties are parties to the arbitration agreement is also not satisfied. The reliefs referred would affect the parties other than DLWL and it has been extracted in the impugned order.

10. From the rival contentions of the learned counsels and also a perusal of the typed set of papers would establish that when the revision petitioner states that the very subscription agreement dated 16.2.1996 itself has got extinguished, there is no question of invoking the Arbitration Clause found in the said subscription agreement. Further, as rightly contended by the learned counsel for the respondent, certain reliefs could be granted only by the Company Law Board, particularly, when provisions of Sections 397, 398, 402 and 403 of the Companies Act is invoked.

11. The learned counsel for the respondent also rightly relied on the decision of the Apex Court in Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya and another, 2003 (2) CTC 431: 2003 (3) CLJ 68, as well as the decision of this Court reported in Gowri Spinning Mills Ltd. v. Adimoolam and also the decision in Sporting pastime India Ltd. v. Kasturi & Sons Ltd., 2006 (4) CTC 377. In the above said cases this Court only reiterated the legal position that scope of the Petition filed under Sections 397 and 398 is quite distinct from the scope of the Arbitration Clause contained in the agreement and reliefs claimed in the Company Petition cannot be granted by arbitrator and it can be granted by Company Law Board alone by virtue of Sections 397, 398, 402 and 403 of the Companies Act. It is also held in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.., 1999 (5) SCC 688, that what can be referred to the arbitrator is only the dispute or matter which the arbitrator is competent or empowered to decide. On the other hand the decision relied upon by the learned counsel for the Revision Petition is factually distinguishable as in the said decision Section 8 Application has been filed when the matter was pending before a Civil Court and in that context only the Apex Court held that when there exists an Arbitration Clause it is mandatory for the Civil Court to refer the matter to the arbitrator. Therefore, considering all these aspects only, the Company Law Board has rightly observed that if CIPL does not have any right to file the Company Petition in view of the subsequent agreement, then it is always open to the DLWL to take preliminary objection on the maintainability of the Company Petition. Therefore, I do not find any illegality or irregularity in the order of the Company Law Board.

12. For these reasons, this C.R.P is dismissed. Consequently, connected C.M.P is also dismissed. No costs.