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AMICUS AI
Citation Codes
Neutral Citations
2010 DHC 5737
Equivalent Citations
citation codes
Case Number
Advocates
  • Mr. Gaurav Duggal with Mr. Rakesh Sharma, Advocate.
  • Mr. Jatan Singh, CGSC for UOI. Mr. Amit Chadha, Senior Advocate with Mr. Ramesh Singh, Mr. A.T Patra and Ms. Roopa Dayal, Advocates for R-3 & R-4.
  • Mr. Gaurav Duggal with Mr. Rakesh Sharma, Advocate.
  • Mr. Jatan Singh, CGSC for UOI. Mr. Amit Chadha, Senior Advocate with Mr. Ramesh Singh, Mr. A.T Patra and Ms. Roopa Dayal, Advocates for R-3 & R-4.
Judges
  • S. Muralidhar, J.
Acts
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Cites
Cited by
Citation Codes
Neutral Citations
2010 DHC 5737
Equivalent Citations
citation codes
Case Number
Advocates
  • Mr. Gaurav Duggal with Mr. Rakesh Sharma, Advocate.
  • Mr. Jatan Singh, CGSC for UOI. Mr. Amit Chadha, Senior Advocate with Mr. Ramesh Singh, Mr. A.T Patra and Ms. Roopa Dayal, Advocates for R-3 & R-4.
  • Mr. Gaurav Duggal with Mr. Rakesh Sharma, Advocate.
  • Mr. Jatan Singh, CGSC for UOI. Mr. Amit Chadha, Senior Advocate with Mr. Ramesh Singh, Mr. A.T Patra and Ms. Roopa Dayal, Advocates for R-3 & R-4.
Judges
  • S. Muralidhar, J.
Acts
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Smart Summary

Case Summary

Factual and Procedural Background

These two writ petitions challenge a common order dated 20 July 2010 passed by the Company Law Board (CLB) in CA No. 469 of 2009 in CP No. 78.ND/2009 (Vijay Sekhri & Ors. v. Tinna Agro Industries Ltd. & Anr.) and CA No. 468 of 2009 in CP No. 79.ND/2009 (Vijay Sekhri & Ors. v. Tinna Oils and Chemicals Ltd. & Anr.). By the impugned CLB order, the CLB allowed applications filed by respondents under Section 45 of the Arbitration & Conciliation Act, 1996 and referred disputes arising out of CP Nos. 78 and 79 of 2009 to arbitration pursuant to the respective shareholders agreements (SHAs) dated 28 February 1998 and 21 April 2004.

The petitions in this Court are Writ Petition (C) No. 7558 of 2010 (corresponding to CP No. 79.ND/2009 concerning Tinna Oils and Chemicals Ltd. — TOCL) and Writ Petition (C) No. 7559 of 2010 (corresponding to CP No. 78.ND/2009 concerning Tinna Agro Industries Ltd. — TAIL). The company petitions before the CLB were filed by the petitioners under Sections 397, 398, 402 and 409 of the Companies Act, 1956, alleging breaches by ADM of covenants in the SHAs. ADM sought reference of the disputes to arbitration under Section 45 of the Arbitration & Conciliation Act, 1996.

The SHAs (28 February 1998 and 21 April 2004) included a clause (Clause 13.6) making it an express condition of any share transfer that transferees undertake in writing to be bound by the SHA; the clause also restricted transfer to persons engaged in certain oil-related businesses. The CLB allowed the reference to arbitration, and this Court (S. Muralidhar, J.) disposed of the writ petitions on 29 November 2010, dismissing them and upholding the CLB's order; the interim order was vacated and the applications were disposed of with no order as to costs.

Legal Issues Presented

  1. Whether the disputes arising out of the Company Petitions (CP Nos. 78 and 79 of 2009) are referable to arbitration under the Arbitration & Conciliation Act, 1996 (particularly Sections 8 and 45), in view of arbitration clauses in the SHAs.
  2. Whether non-signatories to the SHAs (including companies or persons who became shareholders after execution of the SHAs) can be bound by the arbitration clause and thereby have their disputes referred to arbitration.
  3. Whether all disputes raised in Company Petitions under Sections 397, 398, 402 and 409 of the Companies Act, 1956 are arbitrable, and specifically whether the arbitrator can exercise powers conferred on the CLB under Section 402 of the Companies Act.

Arguments of the Parties

Petitioners' Arguments

  • The applications for reference to arbitration were not signed by the respondents or by any authorised signatory.
  • Not all parties to the Company Petitions were signatories to the SHAs containing the arbitration clause, so disputes involving them could not be referred to arbitration.
  • Some disputes did not arise out of the SHAs and therefore were not referable to arbitration.
  • Disputes under Sections 397 and 398 of the Companies Act are not per se arbitrable because the arbitrator lacks jurisdiction to exercise powers vested in the CLB under Section 402 of the Companies Act.
  • Petitioner protested an amendment to the SHAs (by e-mail dated 13 August 2009) retracting consent to the amendment, contending that subsequent instruments could not bind them.

Respondents' Arguments

  • Each SHA contained an arbitration clause and one of the parties to each SHA had applied to the CLB for reference to arbitration; the applications were made before any merits were addressed to the CLB.
  • Non-signatories were related to signatories; further, persons who became shareholders after the SHAs were bound by Clause 13.6 which attached terms to the shares and bound subsequent transferees.
  • An amendment agreement dated 26 June 2009, signed by ADM and the respective companies, incorporated a recital that the parties' mutual rights and obligations shall be governed by the SHAs as amended, thereby addressing the objection that the companies were not parties to the original SHAs.
  • The objections that companies were not parties to the SHAs were no longer valid in view of the amendment agreements and the conduct showing acceptance of the SHA's binding nature.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Everest Holding Ltd. v. Shyam Kumar Shrivastava (2008) 16 SCC 774 That although an arbitrator has no power to order the winding up of a company (a power vested in courts), the arbitrator can adjudicate whether a company is functional, determine the nature and status of its assets, issue directions regarding dues and liabilities, and prescribe appropriate remedies consistent with the arbitration agreement. The Court relied on this decision to reject the submission that arbitrators could not deal with disputes involving companies because they lack powers under Section 402 of the Companies Act; the Court accepted that an arbitrator can adjudicate on many matters short of ordering winding up.
Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd Recognised as authority for the proposition that the power to order winding up of a company is vested in courts under the Companies Act. Quoted (via Everest) to support the proposition that an arbitrator cannot order winding up, while allowing that other adjudications concerning company status and assets can be made by an arbitrator.

Court's Reasoning and Analysis

The Court reviewed the CLB's order and the relevant provisions of the Arbitration & Conciliation Act (Sections 8 and 45). It concurred with the CLB's findings on the following points:

  1. The essential prerequisites for reference to arbitration were satisfied: the dispute was before a judicial authority (the CLB) and the SHAs contained arbitration clauses. One of the parties to each SHA had applied for reference to arbitration before addressing merits to the CLB.
  2. On the question of parties, the CLB had analysed signatories and non-signatories and found the non-signatories to be related to the signatories. At the time of execution of the SHAs, the non-signatories were not shareholders and therefore could not have been signatories; subsequently they became shareholders and were bound by Clause 13.6 which made the terms integral to the shares and bound transferees.
  3. Evidence and allegations presented by signatories and non-signatories could not be separated; additionally, petitioners themselves alleged breaches of the SHAs, thereby accepting their binding nature. Accordingly the CLB was correct in concluding that the arbitration clauses formed an integral part of the SHAs and that disputes could be referred to arbitration.
  4. Regarding the submission that arbitrators cannot exercise powers under Section 402 of the Companies Act (e.g., winding up), the Court relied on the Supreme Court's decision in Everest Holding Ltd. v. Shyam Kumar Shrivastava which recognized that although an arbitrator cannot order winding up (a court's power under the Companies Act, as noted in Haryana Telecom Ltd. v. Sterlite Industries), an arbitrator can still determine whether a company is functional, assess assets and liabilities, and issue directions or remedies consistent with the arbitration agreement.
  5. The Court also considered the 26 June 2009 amendment agreements (relating to the SHAs) relied upon by the respondents, which incorporated a recital that the parties' rights and obligations would be governed by the SHAs as amended, undermining the petitioners' contention that the companies were not bound by the SHAs. Although petitioners pointed to an e-mail retracting consent to the amendment, the petitioners had admitted signing the amendment instruments during a visit to Geneva on 30 June 2009.
  6. On these bases, the Court found no reason to differ from the CLB's detailed reasoning and conclusions and affirmed the CLB's order referring the disputes to arbitration.

Holding and Implications

Holding: Writ petitions dismissed.

Direct consequences:

  • The CLB's order dated 20 July 2010 allowing reference of the disputes in CP No. 78.ND/2009 and CP No. 79.ND/2009 to arbitration was upheld.
  • The petitions were dismissed as without merit; the interim order was vacated; the applications were disposed of; there was no order as to costs.

Broader implications: The Court did not set out any new legal precedent; it applied existing authorities (including Everest Holding Ltd. and Haryana Telecom Ltd. v. Sterlite Industries) to confirm that while an arbitrator cannot order winding up (a court's exclusive power), many company-related disputes—including determinations about company functionality, assets, dues and liabilities—can be referred to and adjudicated by arbitrators under a valid arbitration agreement. The opinion does not discuss additional broader implications beyond these direct effects on the parties.

Judge: S. Muralidhar, J. — Date of Judgment: 29 November 2010.

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    Vijay Sekhri & Ors. Petitioners v. Union Of India & Ors. S

    JUDGMENT

    1. The challenge in these two writ petitions is to a common order passed on 20th July 2010 by the Company Law Board (‘CLB’) in CA No. 469 of 2009 in CP No. 78.ND/2009 (Vijay Sekhri & Ors. v. Tinna Agro Industries Ltd & Anr.) and CA No. 468 of 2009 in CP No. 79.ND/2009 (Vijay Sekhri & Ors. v. Tinna Oils and Chemicals Ltd. & Anr.). By the impugned order common to both petitions, the CLB allowed the applications filed by the Respondents under Section 45 of the Arbitration & Conciliation Act, 1996 (‘AC Act’) in the above matters and referred the disputes arising out of both CP Nos. 78 and 79 of 2009 for arbitration as contemplated by the share holders agreements (‘SHAs’) dated 21st April 2004 and 28 February 1998 respectively.

    2. In this Court while Writ Petition (C) No. 7558 of 2010 corresponds to CP No. 79.ND/2009 concerning Tinna Oils and Chemicals Ltd. (‘TOCL’), Writ Petition (C) No. 7559 of 2010 corresponds to CP No. 78.ND/2009 and concerns Tinna Agro Industries Ltd. (‘TAIL’).

    3. TAIL is a joint venture between ADM Interoceanic Ltd. (‘ADM’), Respondent No. 4 in Writ Petition (C) No. 7559 of 2010, and Tinna Overseas Ltd. (‘TOL’), Respondent No. 5 in Writ Petition (C) No. 7559 of 2010. TOCL is a joint venture between ADM and Tinna Finex Ltd. (‘TFL’), Petitioner No. 3 in Writ Petition (C) No. 7558 of 2010.

    4. On 28 February 1998, an SHA was executed between ADM, TFL and Bhupinder Kumar who was the principal promoter and share holder of TOCL as well as TFL. In terms of the said SHA, ADM subscribed to and acquired 60% equity shares of restructured TOCL subject to certain conditions specified in the SHA. The signatories to the SHA were ADM, TFL, Bhupinder Kumar, the Tinna Group and the TOL. Clause 13 of the SHA dealt with transfer of shares and Clause 13.6 stated as under:

    “13.6 It shall be an express condition of any sale or transfer of the shares that the transferee shall undertake in writing to adhere to and be bound by the terms and conditions of this Agreement. No shares shall be transferred to any person who is directly or indirectly engaged in the business of processing oil seeds, refining of oils or sale of edible oils.”

    5. As far as the petition concerning TAIL, an SHA was entered into on 21 April 2004 between ADM, TOL, TAIL and Bhupinder Kumar whereby ADM acquired 75% of the total enhanced capital of TAIL and TOL was to hold the remaining 25%. Clause 13.6 of this SHA was identically worded as the SHA of 28 February 1998. This SHA dated 21 April 2004 was signed by ADM and TOL represented by its two Directors Vijay Kumar Sekhari and Anil Kumar Sekhari, the Tinna Group and Bhupinder Kumar.

    6. The aforementioned two Company Petitions, i.e CP No. 78 of 2009 and CP No. 79 of 2009, were filed by the Petitioners in Writ Petition (C) No. 7559 of 2010 and Writ Petition (C) No. 7558 of 2010 respectively before the CLB under Sections 397, 398, 402 and 409 of the Companies Act, 1956 (‘Act’) complaining of several actions of the ADM which according to them were in derogation of the covenants of the SHA. It was averred that the covenants of the SHA had been incorporated in the Memorandum of Association and Articles of Association of the respective companies, i.e, TOCL and TAIL but certain resolutions were passed contrary to those documents. In the said petitions, ADM filed applications under section 45 of the ac act seeking reference of the disputes to arbitration.

    7. Several objections were raised by the Petitioner herein to the aforementioned applications seeking reference of the disputes to arbitration. One was that the applications themselves were not signed by any of the Respondents in the two Company Petitions or by any authorised signatory. Secondly, it was submitted that all the parties to the disputes, i.e, parties to the two Company Petitions were not signatories to the SHAs that contained the arbitration clause. Thirdly, some of the disputes did not emanate from the SHAs and therefore reference to arbitration was not permissible. Fourthly, it was submitted that disputes under Section 397 and 398 of the Act was not per se arbitrable as the Arbitrator has no jurisdiction to exercise powers conferred to the CLB under Section 402 of the Act.

    8. By the impugned order, the CLB discussed the provisions of Sections 8 and 45 of the AC Act and correctly concluded that the essential requirements of reference of a dispute to arbitration was that the action should be brought before the judicial authority which CLB undoubtedly was. Secondly, the two SHAs had to contain an arbitration clause which, in fact, they did. One of the parties to the SHAs in each matter had applied to the CLB and these applications were made even before submitting a first statement on the merits of the disputes to the CLB.

    9. As regards parties to the SHAs, the CLB analysed who the signatories were and concluded that the non-signatories were all related to the signatories to the SHAs. On the date of the respective SHAs, the nonsignatories were not share holders in the respective companies and, therefore, could not be signatories to the SHAs. Further, the evidence and allegations presented both by the signatories and non-signatories could not be separated. Lastly, the Petitioners themselves had claimed that the Respondents had committed a breach of the respective SHAs and, therefore, accepted the binding nature of the SHAs. The respective arbitration clauses formed an integral part of SHAs and, therefore, the disputes could be validly referred to arbitration. The CLB also placed reliance upon the decision of the Supreme Court in Everest Holding Ltd. v. Shyam Kumar Shrivastava (2008) 16 SCC 774.

    10. Mr. Gaurav Duggal, learned counsel appearing for the Petitioners reiterated the submissions made before the CLB. He submitted that some of the Petitioners before the CLB were not parties to the respective SHAs and, therefore, the disputes arising between them and the Respondents cannot possibly be referred to arbitration. Mr. Amit Chadha, learned Senior counsel appearing for the Respondents while adopting the submissions made before the CLB pointed out that in addition to the SHA in each of the cases, the parties had entered into a further amendment agreement on 26 June 2009 which was signed by ADM and the respective companies incorporating a recital that “the parties have decided that their mutual rights and obligations and the operation, administration management of the Company with effect from the Execution Date shall be governed by the Shareholders Agreement as amended/agreed by this Agreement.”

    11. It is pointed out by Mr. Chadha that the objection that the companies themselves were not party to the SHAs and, therefore, the disputes in relation to them could not be referred to arbitration is no longer valid in view of the subsequent amendment agreements. In this context, Mr. Duggal referred to e-mail dated 13 August 2009 from Petitioner No. 1 in both the writ petitions protesting against the amendment to the SHAs and retracting them although admitting that they had been duly signed by him during his visit to Geneva on 30 June 2009.

    12. Be that as it may, it appears to this Court that those who were not signatories to the SHAs at the time when the SHAs were executed, became share holders subsequent to the SHAs and were bound by Clause 13.6 in each of the SHAs. The terms and conditions in both SHAs were integral to the nature of the shares and in terms of Clause 13.6 bound the subsequent transferees. With a majority in each company controlled by ADM itself, the question of the disputes involving the companies not being referable to arbitration does not arise as the stand of the companies would be no different from that of ADM. In fact, as long as the Petitioners are bound by the SHAs and Clause 13.6 thereof, they cannot possibly object to the disputes involving TAIL and TOCL being referred to arbitration.

    13. Mr. Duggal then submitted that the Arbitrator could not possibly exercise the powers of the CLB under Section 402 of the Act. A complete answer to this submission is in the decision of the Supreme Court in Everest Holding Ltd. In para 27 of the decision it was observed as under:

    “27. It is true that the arbitrator would have no power to order for winding up of the company as such power is conferred on and vested with a court as envisaged under the Companies Act in view of the decision of this Court in Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd. But in terms of the arbitration agreement, the arbitrator can always find out and adjudicate as to whether or not a company is functional and if it was not functional, in that event he could always find out the nature and status of its assets and can also issue direction and pass orders regarding dues and liabilities and also for taking recourse to appropriate remedy.”

    14. The other submissions of Mr. Duggal were only a reiteration of the submissions already made before the CLB. In regard to these submissions as well, this Court finds no reason to differ from the reasoning and conclusions arrived at by the CLB in its detailed impugned order.

    15. These petitions are without merit and are dismissed as such with no order as to costs. The interim order stands vacated. The applications are disposed of.

    S. MURALIDHAR, J

    NOVEMBER 29, 2010

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    Vijay Sekhri & Ors. Petitioners v. Union Of India & Ors. S
    (Nov 29, 2010)