K.C Ganjwal, Member:— The above-mentioned petitioner has filed two Company Petitions Nos. 32 and 33 of 2004, against Datapro Electronics Pvt. Ltd. and others and M/s. Datapro Infoworld Ltd. and others, under sections 397/398, 399 read with sections 235, 237(b), 402 and 403 of the Companies Act, 1956. The main reliefs sought in the petitions are as under:
(a) Declare respondents Nos. 2 to 6 unfit to be appointed as chairman, managing director, director, as they have caused breach of fiduciary duty imposed on them,
(b) Set aside the issuance of bonus share allotted on June 24, 1999,
(c) To grant immunity to the petitioner from any present or future liability arising out of any violation of regulation/statutory default/non-compliance of rules committed by the respondents,
(d) Direct an independent enquiry/investigation into the affairs of the respondent-company to investigate the unuse of funds.
2. Learned counsel for the respondent submitted:
Respondent No. 2 in the present proceedings as well as the chairman and managing director of Datapro Electronics P. Ltd. and M/s. Datapro Infoworld Ltd. have filed two applications, Nos. 155 and 156 of 2004 under section 8 of the Arbitration and Conciliation Act, 1996. The respondent has stated in his application that the respondent-company is admittedly and presently a joint venture in the style of a partnership between SRG Infotech, a company promoted and controlled by Mr. Ashok Aggarwal, the respondent and his family members. The subject matter of the proceedings before this Board arises out of and is subject to an arbitration agreement in the fact and circumstances stated herein, which material fact has been deliberately suppressed and withheld by the petitioner from this Board.
3. The respondent in these applications had been managing and operating the business of Datapro Electronics including the respondent-company. Due to certain financial difficulties, the respondent was compelled to explore the possibility of locating the strategy and financial partner in the business of the respondent-company. Respondent No. 2 approached Mr. Ashok Agarwal, the promoter and director of the petitioner-company and on the basis of understanding arrived at between the parties, executed a memorandum of understanding on May 10, 1999, with one Mr. Rajesh Kukreja, a nominee of Mr. Ashok Aggarwal. On June 14, 2000, another memorandum of understanding was entered into between the respondent Mr. Ashok Agarwal and Mr. Rajesh Kukreja. The second MoU, inter alia, provides for strategic alliance of the ownership, management and control of Datapro companies including the respondent-company. The second MoU further provided that the respondent would have the responsibility for the day-to-day running of the respondent-company while Mr. Ashok Aggarwal was to look after the matter relating to restructuring of the business and capital market. It was further submitted by learned counsel for the respondent that the entire foundation of the petition and the allegations therein, are based and arise out of the second MoU. In view of the fact that the second MoU contains the arbitration clause for resolution of disputes, the present controversies and disputes have to be settled by arbitration in accordance with the Arbitration and Conciliation Act, 1996. The relevant clause VI of the MoU reads as under:
“All disputes, controversies, or differences, which may arise between the parties, out of or in relation to or in connection with this agreement, or for the breach thereof, shall be finally settled by arbitration, in accordance with the Arbitration and Conciliation Act, 1996. The venue of arbitration shall be Mumbai.”
4. It was submitted that the subject matter of the petition and of arbitration clause mainly clause VI of the MoU dated June 14, 2000, mentioned above is the same. It was also submitted that on account of the statutory mandate conferred under section 5 of the Arbitration and Conciliation Act, 1996, restraining and confining any judicial intervention, the present case is extremely strong for referring the dispute raised in the present petition to arbitration. Learned counsel relied on various decisions in several matter being Naveen Kedia v. Chennai Power Generation Ltd., [1999] 95 Comp Cas 640 (CLB), Escorts Finance Ltd. v. G.R Solvents and Allied Industries Ltd., [1999] 96 Comp Cas 323; [1999] 2 Comp LJ 534 (CLB) and Allianz Securities Ltd. v. Regal Industries Ltd., [2000] 37 CLA 250; [2002] 110 Comp Cas 764 (CLB) wherein, inter alia, it has been held that the CLB has no discretion under the Arbitration and Conciliation Act not to refer the parties to arbitration and such reference is mandatory. It was pointed out that in the case of Allianz Securities Ltd. v. Regal Industries Ltd., [2000] 37 CLA 250; [2002] 110 Comp Cas 764 (CLB) this Board has held that when proceedings have been initiated by statutory authorities, and the company's financial statement are under scrutiny, an order of investigation into the affairs of the company is an avoidable duplication. Learned counsel also referred to the judgment in the case of Dipak G. Mehta v. Anupar Chemicals (India) Pvt. Ltd., [1999] 98 Comp Cas 575; [1999] 33 CLA 393 (CLB) and pointed out that while, in the normal course the company should be a party or the articles should reflect such an agreement to bind the company, yet if the company has taken benefit or has acted in terms of any such private agreement, then the company is bound by the terms of the agreement, at least in relation to the terms that the company has acted upon or derived certain benefit. Learned counsel also referred to the Supreme Court judgment of Smt. Kalpana Kothari v. Smt. Sudha Yadav, (2002) 1 SCC 203 and mentioned that section 8 of the 1996 Act mandates that the judicial authority before which an action has been brought in respect of a matter, which is the subject matter of an arbitration agreement, shall refer the parties to arbitration if a party to such an agreement applies not later than when submitting his first statement. The judgment of the hon'ble Supreme Court in the case of Angang Group Intnl. Trade Corporation v. Pipavav Railway Corporation Ltd. to press its point that it is not necessary to have a formal agreement executed between the parties. It can be even by way of exchange of letters and other such communications. It was also mentioned that the matter is such that it may require probe and inquiry into the objections raised by the respondent and it is only feasible and appropriate that the arbitrator himself may embark upon any such enquiry in case any objection or issue is raised by the respondent before the arbitrator regarding existence of an agreement between the parties. Learned counsel is of the view that whether an agreement between the parties exists or not has to be decided by the arbitrator as mentioned in this judgment. S.P Chengalvaraya Naidu v. Jagannath, (1994) 1 SCC 1 : AIR 1994 SC 853, learned counsel relied on this judgment to press his point that the petitioners have not come with clean hands before this Board as they suppressed the existence of the MoU signed by them. One who comes to court, must come with clean hands. It is a cheating intended to get an advantage. A litigant who approaches the court is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party. The petitioners in this case did not disclose that they had signed the MoU. As such they have not come with clean hands and their petition should be dismissed on this ground.
5. Learned counsel for the respondent also prayed that the matter for arbitration in accordance with clause 6 of the second MoU being the arbitration agreement between the effective parties under section 8 of the Arbitration and Conciliation Act, 1996, be ordered to be referred for arbitration.
6. Learned counsel for the petitioner did not file any reply to this application but made oral submissions. Learned counsel submitted: section 2(1)(h) defines “party” means a party to an arbitration agreement. Section 7 of the Arbitration Act requires an arbitration agreement to be in writing and to be signed by the parties. Section 8 refers to powers of the judicial authority to refer the “parties” to arbitration where there is an arbitration agreement. Learned counsel also pointed out the provisions of section 7(4)(a) of the Arbitration Act which requires a document to be signed by the parties. He submitted that the agreement has been signed by Shri Rajiv Arora CMD of Ms. Datapro Information Technology Ltd. and Datapro Info World Ltd. The second signatory is Mr. Ashok Aggarwal and the third signatory is Mr. Rajesh Kukreja. He further submitted that in the judgment of Bhadresh Kantilal Shah v. Magotteaux International, [2000] 2 Comp LJ 323 (CLB); [2002] 111 Comp Cas 220. It is held that section 2(1)(h) states that “party” means a party to an arbitration agreement. All the three are not parties to all agreements and there is no commonality of parties in all these agreements. As such, this petition was dismissed on the ground of there being no commonality of parties. Learned counsel also relied on the same point on the CLB judgment in the case of Machino Plastic Ltd. v. Kapa. ro Maruti Ltd. where there was no commonality in the parties who signed the agreement. The third judgment of the Madras High Court in the case of Gowri Spinning Mills Ltd. v. Adimoolam, [2002] (Supp) Arb. LR 375 (Mad) was also relied on that when the company is not a party to the arbitration agreement, section 8 of the Act will not apply. A few other following judgments were cited by learned counsel:
Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.., [1999] 97 Comp Cas 683; (1999) 5 SCC 688:
“In this decision, it was held that an arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company since such power is conferred on a High Court by the Companies Act and referral of a winding up petition under section 8 of the Arbitration Act was dismissed.” Khandwala Securities Ltd. v. Kowa Spinning Ltd., [1999] 97 Comp Cas 632 (CLB):
“In this decision, it was held that a strict interpretation of the provisions of section 8 of the Arbitration Act would indicate that only when the subject matter before the judicial body is the same as covered in an arbitration agreement, then, such judicial body would be bound to refer. It is to be noted that the application under section 8 of the Arbitration Act, the role of judicial body is limited to examining whether the subject matter is covered by an arbitration agreement and not to examine whether the allegations merit consideration or not. This can only be done when the pleadings are complete.”
Escorts Finance Ltd. v. G.R Solvents and Allied Industries Ltd., [1999] 96 Comp Cas 323; [1999] 2 Comp LJ 534 (CLB):
“In this decision, it was held that the dispute arising out of these sponsorship agreements have to be adjudicated by the arbitrator under the sponsorship agreement and not the Company Law Board in view of the provisions of section 8 which makes it obligatory for a judicial authority to refer such disputed arbitration, unlike the Arbitration Act according to which a judicial authority had the discretion to either refer the matter to arbitration or not. Accordingly the matter was referred to arbitrator.”
Naveen Kedia v. Chennai Power Generation Ltd., [1999] 95 Comp Cas 640 (CLB):
In this decision, it was held that it is necessary to examine whether the arbitration clause contained in the principal agreement still exists and if so, then, whether the matter arising out of or in connection with the supplemental agreement will also become the subject matter of arbitration. The arbitration clause contained in the principal agreement covered disputes arising out of and in connection with the supplemental agreement also. The parties were referred to arbitration.
7. Learned counsel for the petitioner relying on the above judgments 13 prayed that the provisions of Section 7 of the Arbitration Act are very clear that the agreement has to be in writing and between the parties. section 8 of the Arbitration Act provides for referring the parties to arbitration where there is an arbitration agreement. The petitioners, namely SRG Infotech Ltd. are not a party to the MoU dated June 14, 2000, relied on by the respondents. The question of hiding the provisions of MoU did not arise as the petitioners are not party to this MoU in question and they had also not signed the MoU.
8. I have considered the pleadings and arguments of counsel on both sides. The second MoU dated June 14, 2000, has been signed by Rajiv Arora, Mr. Ashok Aggarwal and Mr. Rajesh Kukreja. The petitioner-company, namely, SRG Infotech limited is not a party to this MoU as no one has signed on behalf of the petitioner-company. During the arguments, learned counsel for the respondents mentioned that after execution of the said MoU and part performance by Mr. Ashok Aggarwal, DIL issued and allotted to SRG 14,89,500 shares of Rs. 10 each and DEPL issued and allotted to SRG 7,64,900 shares of Rs. 10 each and accordingly the petitioner-company is a party to the MoU. It has also been mentioned by counsel for the respondent that in the MoU it is mentioned that the nominees of signatories will also be the parties. As such, the company represented by the signatories, namely, Rajesh Kukreja, becomes a party to the MoU.
9. I am not convinced with the arguments advanced by learned counsel for 15 the respondents. It is true that someone has to sign an agreement on behalf of a company which is a legal entity but the same is only valid when such a person has explicit authorisation from the company. Learned counsel for the respondents have not been able to place anything on record that such an authorisation was given to Mr. Rajesh Kukreja to sign on behalf of the petitioner-company. The case laws relied upon in the matter of Naveen Kedia v. Chennai Power Generation Ltd., [1999] 95 Comp Cas 640 (CLB) and Escorts Finance's case, [1999] 96 Comp Cas 323; [1999] 2 Comp LJ 534 (CLB) are not applicable in this case as the parties to the arbitration agreement (MoU) are not common. The CLB has no discretion but to refer the case for arbitration under the Arbitration and Conciliation Act, provided the provisions of Section 7 of the Arbitration Act are fulfilled. As the parties are not common in the MoU in this case, the question of relegating the parties to arbitration does not arise. When the company is not a party to the arbitration agreement, section 8 of the Arbitration Act will not apply. This has already been held in a number of judgments quoted by learned counsel of the petitioner which have been discussed above.
10. Accordingly, I dismiss C.A No. 155 of 2004 in C.P No. 32 of 2004 and C.A No. 156 of 2004 in C.P No. 33 of 2004 on the ground that the petitioners and respondents are not a party to the relevant MoU containing arbitration clause.
11. Respondent No. 7 has filed application C.A No. 157 of 2004 seeking clarification on the order passed by this Bench granting “status quo” on June 7, 2004. It is clarified that none of the parties shall write against each other to bankers or suppliers or other clients etc. It is also clarified that the parties have not been restrained from carrying out their day-to-day operations. With these directions, application C.A No. 157 of 2004 also stands disposed of with liberty of respondent No. 7 to file reply to the main petition. The respondents are directed to file their reply to the petition by August 20, 2004 and rejoinder to be filed by September 1, 2004. The petition will be heard on September 22, 2004, at 2.30 p.m
12. With the above directions, the applications in question stand disposed of. There are no orders as to costs.