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Citation Codes
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Case Number
Attorney(S)
  • 4. Birendra Saraff, Advocate, /Petitioners
  • 1. Zal Anthyarujina, Advocate
  • 2. Ameya Gokhale, Advocate, For Applicant/R5
  • 3. Anushka Sharda, Advocate
Judges
  • Kanthi Narahari, J.M
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • 4. Birendra Saraff, Advocate, /Petitioners
  • 1. Zal Anthyarujina, Advocate
  • 2. Ameya Gokhale, Advocate, For Applicant/R5
  • 3. Anushka Sharda, Advocate
Judges
  • Kanthi Narahari, J.M
Acts
See more information ...
Smart Summary

Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

This opinion arises from an application (CA No. 123 of 2011) filed under Section 8 of the Arbitration and Conciliation Act, 1996 by Respondent No. 5 (the applicant) seeking an order that the parties be referred to arbitration pursuant to Clause 20 of a Joint Venture (J.V.) Agreement and that Company Petition No. 48 of 2011 (filed by respondents/petitioners 1, 2 and 3) be dismissed with costs.

Relevant chronology and factual matrix as presented in the opinion:

  • A Joint Venture Agreement between the parties is recorded in the record (the opinion variously records dates including 20 September 2007 and 29 September 2007 as the date of the J.V. Agreement).
  • The applicant (R5) and certain respondents entered into that J.V. Agreement; its terms (including an arbitration clause identified as Clause 20 of the J.V. Agreement) were also incorporated into the company's Articles of Association (referred to as Clause/Article 59 of the then AOA).
  • By a letter dated 13 January 2011 the applicant terminated the J.V. Agreement; that termination was acknowledged by the petitioners by a letter dated 14 January 2011.
  • Following termination, an ordinary/board process was taken which culminated in an Extra-Ordinary General Meeting (EOGM) on or about 24 February 2011 (the notice of which circulated an explanatory note on 23 February 2011). At that EOGM resolutions were adopted to adopt Table A of Schedule I of the Companies Act, 1956 as new Articles of Association and to reconstitute the Board by removing certain directors.
  • Petitioners filed CP No. 48 of 2011 under Sections 397 and 398 of the Companies Act, 1956 alleging acts amounting to oppression and mismanagement and seeking reliefs connected to the validity of the termination of the J.V. Agreement and subsequent corporate actions.
  • R5 (applicant) then filed the present application under Section 8 of the Arbitration Act seeking referral to arbitration and dismissal of CP No. 48/2011.

Legal Issues Presented

  1. Whether the Company Law Board (CLB) / judicial authority ought to refer the disputes between the parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996, given the existence of Clause 20 of the J.V. Agreement (adopted into the AOA as Article 59)?
  2. Whether the CLB has jurisdiction to adjudicate the reliefs sought in CP No. 48/2011 (including reliefs under Sections 397, 398, 402 and 403 of the Companies Act, 1956), or whether those questions must first be decided by an arbitral tribunal?
  3. Whether all parties to the company petition are parties to the arbitration agreement and, if not, whether that affects the maintainability of an application under Section 8 (i.e., whether absence of some parties from the arbitration agreement prevents a reference)?
  4. Whether the petitioners meet the statutory eligibility threshold (as per Section 399 of the Companies Act) for filing the company petition, given the alleged allotments that affected membership numbers?

Arguments of the Parties

Applicant's (Respondent No. 5) Arguments

  • The applicant contended it was respondent No. 5 to CP No. 48 of 2011 and filed the present application under Section 8 to refer the parties to arbitration in terms of Clause 20 of the J.V. Agreement and to dismiss the company petition with costs.
  • The applicant asserted that the J.V. Agreement (dated in the record as 20 September 2007 and elsewhere referred) was terminated by the applicant's letter dated 13 January 2011; consequential corporate actions (adoption of new AOA and removal of certain directors) flowed from that termination.
  • Clause 20 of the J.V. Agreement provides for arbitration (ICC rules, in Mumbai, three arbitrators, final and binding award); Clause 20 also was incorporated into the company's Articles (as Article 59 of the then AOA), and therefore disputes about interpretation/implementation of the Agreement are subject to arbitration.
  • The applicant maintained the CLB lacked jurisdiction to entertain questions about the validity of the termination of the J.V. Agreement and, consequently, the validity of actions taken by the company post-termination — these matters must be referred to arbitration.
  • The applicant argued that petitioners 1 and 2 together constituted only 2 out of 26 members and hence did not meet the eligibility threshold under Section 399 of the Companies Act for filing the petition under Sections 397/398 (submitted as an additional ground to dismiss the petition).
  • The applicant filed the Section 8 application before submitting its first statement on the substance of the dispute (timeliness in terms of Section 8 was asserted).
  • Applicant relied upon (inter alia) the decision in Naveen Kedia v. Chennai Power Generation Ltd (reported in 1999) as supportive of referral to arbitration under the changed law (post-1996 Act and Section 45 in the CLB's earlier discussion).

Respondents'/Petitioners' Arguments

  • The respondents/petitioners alleged the Section 8 application was mala fide and a delaying tactic because the applicant had no defence on merits.
  • They argued the scope of a company petition under Sections 397 and 398 is distinct from the scope of an arbitration clause and that reliefs claimed (including reliefs under Sections 397, 398, 402, 403) can only be granted by the CLB; arbitrators lack such statutory powers.
  • They asserted a prima facie case of oppression and mismanagement, listing acts they allege the applicant committed: illegal amendment of Articles and Memorandum, illegal removal of directors, attempts to shift registered office, short/illegal notices, and illegal proposals to transfer shares — all amounting to oppression and mismanagement.
  • They contended not all petitioners were parties to the arbitration agreement (Petitioner No. 3 is not a signatory) and other respondents alleged to have committed mismanagement were also not parties to the arbitration agreement; thus Section 8 could not be invoked.
  • They argued there can be no bifurcation of subject-matter between the CLB and an arbitrator (i.e., parts of company petition cannot be split off to arbitration where issues of oppression and mismanagement are involved).
  • They urged that cause of action and parties cannot be split; hence, some parties cannot be sent to arbitration while others remain before the CLB where not all are parties to the arbitration agreement.
  • They alleged the EOGM of 24.2.2011 was illegal (short notice), and that alleged allotment of one share each to 20 individuals shortly before the EOGM was an afterthought designed to defeat the company petition and to reduce the petitioners' standing.
  • The respondents relied on several precedents (listed in the opinion) to support their position that the CLB should retain jurisdiction in relation to the company petition.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Naveen Kedia v. Chennai Power Generation Ltd (reported 1999, Company Cases Vol.95 p.610) CLB's earlier view (as quoted) that after the Arbitration & Conciliation Act, 1996 (particularly s.45 for foreign arbitration) a judicial body must refer parties to arbitration where an arbitration agreement applies; sets out the ingredients of s.45. The applicant relied on this decision; the court indicated agreement with the proposition that when the subject-matter is covered by an arbitration agreement the judicial authority is required to refer the matter (court stated it "fully agree[s]" with the proposition).
Manavendra Chitnis v. Leela Chitnis Studios ((1985) Company Cases p.113, Bombay High Court) Principle that mere existence of an arbitration clause or award does not necessarily oust the court's jurisdiction under Sections 397 and 398; an arbitrator lacks some powers that courts/tribunal possess under company law. Respondents relied on this authority to argue CLB jurisdiction is not fettered by arbitration clauses for certain company law reliefs. The court considered these authorities in its analysis but reached a conclusion in favor of referral on the facts before it.
Premier Automobiles Ltd v. Fiat India Pvt. Ltd (2007, 137 Company Cases 737, CLB) Where there is no commonality of parties and many allegations in the petition are unrelated to matters covered under the arbitration agreement, relegating the matter to arbitration may not be appropriate. The respondents cited this case. The court examined commonality and found, on the facts before it, sufficient connection between the petition and the arbitration agreement (and sufficient commonality of parties) to warrant referral.
Dr. G.L. Purohit v. Dr. S.S. Agarwal ((2011) 163 Company Cases 205, CLB) Held that commonality of subject-matter is a prerequisite for invoking/applying Section 8; where the subject-matter of the company petition is not the same as that of an agreement with an arbitration clause, Section 8 will not apply; arbitrator cannot grant reliefs of the nature specified in Sections 402 or 403. Respondents relied on this decision. The court analysed the pleadings and concluded that in the present matter the subject-matter of the company petition substantially overlaps with the J.V. Agreement and the arbitration clause, making Purohit distinguishable on facts.
Sumitomo Corporation v. CDC Financial Services (2008) 4 SCC 91; AIR 2008 SC 1594 Authorities on the scope of Section 8 and the requirement that the matter be the subject-matter of an arbitration agreement to warrant reference. Respondents cited this authority; the opinion records the citation among authorities considered in the dispute over arbitrability. The court's ultimate reliance was principally on Section 8's mandatory referral duty where the subject-matter coincides with the arbitration agreement.
Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya (2003) 5 SCC 531; AIR 2003 SC 2252 Clarifies the language of Section 8: the suit must be "in respect of" a matter which is the subject-matter of an arbitration agreement; where the suit concerns a matter outside the arbitration agreement or involves parties who are not parties to the arbitration agreement, Section 8 will not apply (the phrase "a matter" implies the entire subject-matter). Respondents relied on Sukanya. The court explicitly held that Sukanya was not applicable to the facts of the present case (i.e., the court found that the present petition's subject-matter was within the arbitration agreement and therefore Sukanya did not preclude referral).
Kalpana Kothari v. Sudha Yadav ((2002) 1 SCC 203) Affirms that a judicial authority before which an action has been brought that is a subject-matter of an arbitration agreement is under a duty to refer that dispute to the agreed arbitral mechanism (interpretation and application of Section 8). The court drew a beneficial reference to this Supreme Court authority and treated it as supporting the obligation on judicial authorities to refer disputes to arbitration where Section 8 applies.

Court's Reasoning and Analysis

The court's reasoning proceeded from an examination of pleadings, documents and the authorities cited by both sides. The court focused on whether the applicant had established a case to refer the parties to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996.

Key steps in the court's analysis as stated in the opinion:

  1. The court identified the "root cause" of the dispute as arising out of the J.V. Agreement (variously dated in the record) and noted the applicant terminated the J.V. Agreement by letter dated 13.01.2011 — a fact acknowledged by the petitioners.
  2. The court observed that the petitioners' allegations in the company petition centered on contravention and violation of the J.V. Agreement and of the Articles of Association (the petition itself repeatedly referred to the J.V. Agreement in multiple paras identified by the court).
  3. The court examined the company's Articles of Association as they stood prior to the amendment of 24.2.2011 and noted that the terms of the J.V. Agreement had been incorporated into the AOA (in particular Clause 58 relating to term/termination and Clause 59 referring disputes to arbitration under ICC rules).
  4. On the question of parties, the court analysed the cause title and array of parties: of the three petitioners, Petitioners 1 and 2 were shareholders and Petitioner 3 was a director only (not a shareholder). The court held that a person who only holds a directorship (without being a shareholder) cannot seek a remedy under Sections 397/398; therefore Petitioner 3 was not a necessary party for the purposes of the company's petition seen against the statutory scheme invoked.
  5. The court considered the respondents' contention that some reliefs claimed (e.g., those under Sections 402/403) could only be granted by the CLB and were non-arbitrable; it concluded, after examining the pleadings and the terms of the J.V. Agreement (as incorporated into the AOA), that the essential subject-matter of the company petition overlapped with matters covered by the arbitration clause.
  6. The court weighed authoritative pronouncements (including Kalpana Kothari and precedents discussing the limits of Section 8) and concluded that Section 8 imposes a mandatory duty to refer where the subject-matter before the judicial authority is the same as that covered by an arbitration agreement. The court expressly found that the present petition's subject-matter was within the scope of the arbitration clause.
  7. The court also noted the procedural requirement in Section 8 that an application to refer parties to arbitration must be made not later than when submitting the first statement on the substance of the dispute; in the present case the application (CA No. 123/2011) was filed before the applicant submitted its first statement.
  8. On the basis of the foregoing factual and legal analysis, the court concluded there was no impediment to referring the dispute to arbitration and that the Section 8 application should succeed.

Holding and Implications

Holding:

APPLICATION ALLOWED; COMPANY PETITION NO. 48 OF 2011 IS DISMISSED AND THE MATTER IS REFERRED TO ARBITRATION.

Consequential and practical implications (as recorded in the opinion):

  • The company petition (CP No. 48 of 2011) was dismissed insofar as it stood before the bench because the court referred the disputes to arbitration in terms of Clause 20 of the J.V. Agreement (as incorporated in the company's Articles of Association).
  • All interim orders previously in place were vacated.
  • All pending applications as on the date of the order were disposed of.
  • No order as to costs was made.

Broader implications: The opinion invokes and applies the mandatory referral duty under Section 8 of the Arbitration and Conciliation Act, 1996 where the judicial authority finds that the subject-matter of the court/tribunal proceedings is the same as that covered by an arbitration agreement and procedural pre-conditions (timely application) are satisfied. The court did not purport to lay down a novel precedent beyond applying existing authorities and the statutory obligation under Section 8; the immediate, direct effect is the dismissal of the company petition and referral of the dispute to arbitration as indicated above.

Show full summary ...

    Bialetti Industries S.P.A. v. Rachit Suresh Gangar

    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 J.V Agreement and dismiss the petition with costs.

    2. Shri Zal Andhyarjuna, Learned counsel appearing for the applicant submitted that the applicant is the respondent No. 5 to the company petition. The respondents 1, 2, 3 filed the petition being CP No. 48 of 2011 inter alia praying the main relief as per para 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 CP for the reasons as stated hereunder. It is submitted that the applicant, respondent Nos. 1, 2 and respondent No. 4 had entered into a Joint Venture Agreement dated 20 September 2007. The JV 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 the respondent Nos. 1 and 2 reneged on their various obligations under the JV Agreement. Pursuant thereto, the applicant was constrained to terminate the JV Agreement vide its letter dated 13 January, 2011. Consequent to the termination of the JV Agreement, the special rights conferred on Respondent Nos. 1 and 2 also came to an end. Therefore, a meeting of the Board of Directors of Respondent No. 4 was convened on 22 February 2011 inter alia to consider and discuss convening of an EOGM to consider adoption of Table A of Schedule 1 of the Companies Act, 1956 as the new Articles of Association of the Respondent No. 4 and further to consider and discuss the reconstitution of the Board of Directors of Respondent No. 4 by removal of respondent Nos. 1 and 3 from the Board of Directors of respondent No. 4. It is submitted that on 24 February 2011 an extra ordinary 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 the Respondent No. 4 and the reconstitution of the Board of Directors of Respondent No. 4 by removal of respondent 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 Extra Ordinary General Meeting dated 23rd February, 2011. At the said Extraordinary General Meeting dated 23rd February, 2011 both the aforementioned resolutions were adopted by the 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 the Respondent No. 4 and resolution to reconstitute the Board of Directors of Respondent No. 4 by removal of Respondent 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 Respondent Nos. 1 and 3 from the Board of Directors of Respondent No. 4, is a direct outcome of the termination of the JV Agreement by the Applicant. In fact, Respondent Nos. 1 to 3, have specifically sought a declaration from this Hon'ble Board on the validity of the JV Agreement. This Hon'ble Board has no jurisdiction to entertain the question of the validity of the termination of the J.V Agreement. As per Clause 20 of the JV Agreement, any disputes and differences which arise with the interpretation or implementation of the JV 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 JV Agreement was also incorporated as Article 59 of the previous Articles of Association of Respondent No. 4, which Respondent Nos. 1 to 3 allege, are binding on the parties. In 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 the Respondent 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 JV Agreement. It is submitted that the total number of members of respondent No. 4 is 26. The respondents 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, 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. The learned counsel in support of his contention relied upon a decision of Principle Bench reported in (1999) Volume 95 Company cases Page 610 in the matter of Naveen Kedia v. Chennai Power Generation Ltd. The CLB is of the view that “however, after coming into force of 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 CLB 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 CLB 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, the learned counsel for the applicant prayed this bench to refer the parties to arbitration by dismissing the petition.

    3. The respondents/petitioners filed their reply to the application. Shri Birendra Saraf, the Learned counsel for the respondents submitted that the present application has been filed by the applicant malafidely 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 defense 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:

    (a) A scope of a Company Petition filed under sections 397 and 398 of the Companies Act, 1956 is distinct from the scope of an arbitration clause. Reliefs claimed in the present company petition cannot be granted by an arbitrator and can be granted by this Hon'ble Board alone by virtue of sections 397, 398, 402 and 403 of the Companies Act, 1956.

    (b) A prima facie case of oppression and mismanagement has been made out by the petitioners against the respondents. The illegal acts of the applicant in terms of the petitioners and TBIL as stated in the Company Petition include illegally amending the Articles of Association and Memorandum of Association of TBIL, violating the articles of Association and Memorandum of Association, illegally removing the directors representing the petitioners, illegally attempting to shift the registered office of the company, giving short and illegal notices to the board members represented by the petitioners and illegally proposing to transfer the shares of TBIL. The aforesaid acts amount to oppression and mismanagement and therefore, this Hon'ble Board alone has the jurisdiction to deal with the same especially in view of the settled law that parties cannot oust the statutory jurisdiction of this Hon'ble Board.

    (c) It is settled law that unless all the parties to the company petition are parties to the Arbitration Agreement, an application under section 8 of the Arbitration and Conciliation Act, 1996 is not maintainable. In the present case, the arbitration clause is in the Joint Venture Agreement dated September 20, 2007 and Petitioner No. 3 who has been illegally removed from the directorship of TBIL, is not a signatory to the same. Further, all the respondents who are guilty of having committed gross acts of oppression and mismanagement are also not parties to the Arbitration Agreement. Hence, there is no question of referring the parties herein to arbitration.

    (d) It is settled law that there can be no bifurcation of subject-matter between the company law board and the arbitrator. Even in the case of partial coverage of disputes by the agreement, the parties cannot go for arbitration. Therefore, where issues related to oppression and mismanagement are also to be decided the subject-matter of the company petition cannot be split between the Hon'ble Board and the Arbitrator and the reference to arbitration ought to be rejected.

    (e) It is settled law that there cannot be splitting of cause of action and splitting of parties in case all the parties to the company petition are not parties to the arbitration agreement. Hence, in view of the aforesaid there cannot even be a situation where some of the parties are referred to arbitration and the others not. In the present case, all the parties are not a party to the arbitration agreement, therefore, the present application ought to be dismissed in limini. It is submitted that there was a clear understanding between the petitioners and the respondents that though Respondent No. 4 incorporated as a company was in essence, a quasi partnership and had preemptive rights in the business, if the other partner was desirous of exiting and both the partners had a legitimate expectation to be involved in the management of the company. The clauses of the JV Agreement were incorporated in the Articles of Association of R4 Company which is binding upon the share holders. The purported termination of JV Agreement is complete disregard to the contract and the terms of the JV Agreement on the false grounds that the share holding of the respondent Nos. 1 and 2 had fallen below 10%. The respondents have communicated to the applicant and the other respondents stating that the purported unilateral terminal of the JV Agreement was illegal and in violation of the terms of the JV Agreement. The respondents illegally amended the articles of R4 Company which is further act of oppression of the minority share holder and also removal of directors representing the respondents 1, 2, 3 herein by passing invalid resolutions is illegal. Under Article 19.6.2 of the JV Agreement it has been expressly provided that the right of 1 refusal provided in the JV Agreement even survives the termination of the agreement. It is submitted that the EOGM dated 24.2.2011 was illegally held with a short notice of a single day and for discussion of agendas which were in gross oppression of the rights of the minority share holders of R4 as more particularly stated in the company petition. It is settled law that the CLB has vide powers under sections 397, 398 and that by virtue thereof this bench may pass any order which would affect the company's affairs including an order on the validity of the termination of the JV Agreement. So far as the total number of members of R4 is concerned at illegal EOGM on 24.2.2011 one share each was purportedly allotted by circular resolution to 20 individuals. Out of the said 20 individuals, one individual is a current employee of the R4, another individual an ex-employee, another individual the relative of the aforesaid current employee. The purported allotment of shares is illegal and after thought made with the sole intent of oppressing respondents 1 to 3 herein and as an obvious and wrongful attempt to defeat a company petition under sections 397, 398 of the Companies Act. In view of the reasons as stated, the application is not maintainable and liable to be dismissed. In support of the case the learned counsel relied upon the following decisions:

    i) (1985) Company cases page 113 (Bombay High Court) In the matter of Manavendra Chitnis v. Leela Chitnis Studios: it is held “In this case, it is an admitted position that the award has been impeached and it is not urged by the applicants that this impeachment is not on sufficient ground and not in an appropriate proceeding. This must decract from Mr. Zaiwalla's argument as to the effect of the said award. Then again, considering the ratio laid down in the cases cited by Mr. Bhat, it is abundantly clear that merely because there is an arbitration clause or an arbitration proceeding, or for that matter an award, the Court's jurisdiction under sections 397, 398 cannot stand fettered. On the other hand, the courts have gone to the length to hold that the matter which can form the subject-matter of a petition under sections 397 and 398 cannot be the subject-matter of an arbitration, for an arbitrator can have no powers such as are conquered on the court, such as section 402 of the Companies Act.”

    ii) (2007) 137 Company cases 737 (CLB) In the matter of Premier Automobiles Ltd. v. Fiat India Pvt. Ltd. It is of the view “therefore, when there is no commonality of parties and when many allegations in the petition are not traceable or related to matters covered under Arbitration Agreement and it can be examined without reference to any of these agreements the question of relegating the parties to arbitration does not arise and accordingly, the application is dismissed.”

    iii) (2011) 163 Company Cases 205 (CLB): In the matter of Dr. G.L Purohit v. Dr. S.S Agarwal. It is of the view that “commonality of the subject-matter is a pre requisite to invoke/apply section 8. It is noted that the subject-matter of the company petition is not the same as that of the Memorandum of Understanding between respondent No. 2 and petitioner No. 1. The arbitrator cannot grant relief of the nature specified in section 402 or 403 of the Act.

    iv) (2008) 4 SCC 91 : AIR 2008 SC 1594 In the matter of Sumitomo Corporation v. CDC Financial Services Para 11.

    v) (2003) 5 SCC 531 : AIR 2003 SC 2252 In the matter of Sukanya Holdings Pvt. Ltd. v. Jayesh H. Pandya Para 15. It is held “The relevant language used in S. 8 is - “in a matter which is the subject-matter of an arbitration agreement”. Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of “a matter” which the parties have agreed to refer and which comes within the ambit of arbitration agreement. Where, however, a suit is commenced - “as to a matter” which lies outside the arbitration agreement and is also between some of the parties who are not parties to the arbitration agreement, there is no question of application of S. 8. The words ‘a matter’ indicates entire subject-matter of the suit should be subject to arbitration agreement.”

    4. Heard, the Learned Counsel appeared for the respective parties, perused pleadings documents and citations relied upon by them. After analyzing the pleadings, the only issue which is felt for consideration is that whether any case is made out by the applicant to refer the parties/petition to the arbitration?

    5. 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 JV Agreement dated 29/09/07 as referred in para 14 of the petition. However, the said J.V Agreement had been terminated by a letter dated 13.01.2011 by the applicant herein and as acknowledged by petitioner by their letter dated 14.1.2011

    6. The main allegation of the petitioner is that there had been contravention and violation of J.V Agreement and Articles of Association of the Company. The petitioners had admitted that the AOA of the company were amended on 30.10.2007 by incorporating the clauses of the J.V Agreement as forming part of AOA of the company. However, the petitioners are agreed on the action taken by the respondent company for adoption of a new set of articles at the EOGM held on 24/2/2011 which was held subsequent to notice of termination of J.V Agreement. From the above it is evident that the present petition has been filed by the petitioners during June 2011, aggrieved by the action of termination of J.V Agreement and consequential there of and also subsequent events that arose after the said date of termination. The petitioners have not challenged the said termination of J.V Agreement but are challenged the actions initiated by the company in the period after the said date of termination. The present application has been filed by R5 (applicant herein) seeking direction from this bench to refer the matter to Arbitration as per clause 20 of J.V Agreement and sought dismissal of the CP with costs. The applicant contended that the whole petition is based on the allegation of breach of contract i.e J.V Agreement and all the reliefs that are sought are subject-matter of J.V Agreement. The applicant has made out their case and clearly stated in this application that the petition is not maintainable in view of the reason that the facts and reliefs are subject-matter of J.V Agreement. The relevant paras of application (CA No. 123 of 2011) are extracted hereunder for better appreciation.

    Para 9: The applicant states and submit that from the above factual position it is clear that the adoption of new articles of association and removal of respondent Nos. 1 and 3 from the Board of Directors of respondent No. 4, are a direct outcome of the termination of the JV Agreement by the Applicant. Any decision on the validity/termination of the JV Agreement will therefore conclusively decide the issue of the validity of respondent No. 4's adoption of new Articles of Association and removal of Respondent Nos. 1 and 3 from the Board of Directors. In fact, Respondent Nos. 1 to 3, have specifically sought a declaration from this Hon'ble Board on the validity of the JV Agreement.

    Para 10: The applicant states however, that this Hon'ble Board has no jurisdiction to entertain the question of the validity of the termination of the JV Agreement. As per Clause 20 of the JV Agreement, any disputes and difference which arise with the interpretation or implementation of the JV Agreement such disputes have to be resolved by reference to Arbitration as per the provisions of the said clause 20. Clause 20 of the JV Agreement is reproduced here below for the sake of convenience:

    “Clause 20 of Arbitration Agreement

    20.1 In the event any dispute or difference arises in connection with the interpretation or implementation of the Agreement, the parties shall attempt in the first instance to resolve such dispute through friendly consultations between the President of Bialetti and Mr. Suresh Dhanji Gangar (or any other designee of the Ganagars). If the dispute or difference is not resolved through friendly consultations within thirty days from the date of commencement or discussions or such longer period as the parties agree in writing, then either party may refer the dispute by arbitration according to the Rules of Conciliation and Arbitration of the International Chamber of Commerce (“ICC”). The Arbitration shall be conducted in Mumbai, in the following manner:

    20.1.1 All arbitration proceeding shall be conducted in English.

    20.1.2 There shall be three arbitrators, all of whom shall be fluent in English. The parties shall each appoint one arbitrator, while a third arbitrator who shall serve as the chairman of the panel, shall be appointed by ICC.

    20.1.3 The arbitration award shall be final and binding on the parties and the parties agree to be bound thereby and to act accordingly.

    20.1.4 The panel may (but shall not be required to) award to a party that substantially prevails on merits, its costs and reasonable expenses (including reasonable fees of its counsel).

    20.1.5 When any dispute is under arbitration, except for the matters under dispute, the parties shall continue to exercise their remaining respective rights and fulfill their remaining respective obligations under this Agreement.”

    Para 11: The Applicant repeats and reiterates that for the grant of any of the reliefs as prayed for by Respondent Nos. 1 to 3 in the said petition, the issue of the validity of the termination of the J.V Agreement has to be decided in accordance with the provisions of the Clause 20 of the JV Agreement. In 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 the applicant Nos. 1 to 3. The applicant therefore states and submits that this Hon'ble Board ought to refer the parties to arbitration as specified and agreed to by the parties under Clause 20 of the JV Agreement.

    7. The respondents in their reply contended that the applicant has not filed any application seeking deletion of petitioner No. 3, therefore they are necessary parties. It is further contended that the breach of provisions of J.V Agreement are clear oppression and mismanagement and all the reliefs are not arbitrable, particularly prayer(f) onwards, therefore the application deserves to be dismissed. The respondents also alleged that subject-matter of CLB proceedings and the subject-matter of disputes arising out of J.V Agreement are different, therefore the same cannot be referred u/s 8 of the A & C Act.

    8. On perusal of AOA of the company as it stood prior to the amendment on 24.2.2011, it becomes clear that the J.V Agreement dated 20.09.2007, had been adopted the terms of J.V Agreement dated 20.09.2007 Clause 58 of the AOA relates to Term and Termination and the Consequences of Termination. Further clause 59 of the then AOA refers to disputes between the parties to be settled by an arbitrator according to the rules of conciliation and arbitration of the International Chamber of Commerce (ICC). The core disputes between the two groups relates to the share holding and the management of the respondent company. The applicant and the respondents had entered into J.V Agreement which contained a clause for settling the disputes if any through arbitration. A close analysis of nature of reliefs sought by the respondents before this bench is that the entire petition reveals that it relates and arises from the same issues which bear the subject-matter of the Agreement, which contained an arbitration clause. Even the pleadings in the main CP, particularly in paras 18, 20, 26, 27, 29, 30, 32, 33, 34, 35, 49(j), 41(a), 42 & 46 referring to J.V Agreement and also the alleged breach thereto by the applicant herein.

    9. In these circumstances, it has become necessary for me to give due weightage to the interest of the parties and refer the disputes to arbitration. The A&C Act, 1996 stipulates that the judicial authority is bound to refer the matter to arbitration as agreed to by the parties. In this connection, a beneficial reference is drawn from the judgment of Hon'ble Supreme Court in Kalpana Kothari v. Sudha Yadav reported in (2002) 1 SCC 203, wherein, the Apex Court, held that every judicial authority before which an action has been brought in respect of a matter is brought which is a subject-matter of arbitration agreement is under a duty to refer such a dispute to the mechanism agreed upon by the parties and hence, the spirit of the provision as well as its true meaning has to be given due effect wherever the issue of reference u/s. 8 of the Act is being brought up.

    10. One of the objections of the respondents/petitioner is that the parties to the CP and the parties to the J.V Agreement are not the same and hence the matter should not be referred to arbitration. A perusal of the cause title and the array of parties, it is seen that there are three petitioners. Out of three petitioners, petitioners 1 and 2 are only the share holders and Petitioner 3 is only a director of the respondent company and not a share holder. Per se, the CP is filed u/s. 397/398 of the Companies Act and a person who is holding a director ship cannot seek any remedy by virtue of said provisions. Hence the Petitioner No. 3 being not a share holder cannot be considered as a necessary party in view of the mandatory provisions of Law. This leaves the position to Petitioners 1 and 2 who are share holders of the company and represented as the Gangar Group in the J.V Agreement. For the above reasons the contention of respondents that the parties before the CLB proceedings vis-a-vis the parties in the J.V Agreement are not one and the same, cannot be acceptable. It is presumed that the 3 petitioner was added to the petition only to defeat the case of the applicant on being referred to the arbitration. The respondents have cited the judgment of the CLB on the point of commonality of parties are concerned that in the present case the 3 petitioner was added to the petition in the capacity as director and he is not a share holder and most of the allegations made in the petition are with regard to the J.V Agreement. Therefore, the said judgements are not applicable to the fact of the present case. The next contention of the respondents is that the relief sought in the company petition cannot be considered as arbitrable by the arbitrator. The powers to decide those referred issues in the CP can only be decided by CLB and not by the Arbitrator. In short the stand of the respondents is that the subject-matter of the proceedings cannot be bifurcated one to the CLB and one to the arbitration. In this regard the main grievance of the petitioner in CP was non-performance of the terms of the agreement as mentioned in various paragraphs of the petition including in the pleadings at paras 18, 20, 26, 29, 30, 32, 33, 34, 35, 40(j), at 42 & 46 of the company petition. On perusal of the agreement it clearly shows that it provided for arbitration for such matters as referred to in the pleadings as above referred paragraphs in the petition. Therefore, the matter covered in the petition is the subject-matter in the arbitration and it cannot be said that if the matter is referred to the arbitration, the other issues and the subject-matter will remain unattended or unresolved. Therefore, the decision relied upon by the respondents in the matter of Sukanya Holdings Pvt. Ltd. per se is not applicable to the facts of the present case. There is no scope to examine whether there is oppression and mismanagement without first decided whether there is breach of contract i.e J.V Agreement, & AOA of the company all of which contained a clause of Arbitration. In these circumstances, the claim of the respondents that the subject-matter cannot be referred to arbitration is completely against the provisions of Section 8 of the A & C Act. A strict interpretation of section 8 of the Act indicates that when the subject-matter before the judicial authority is the same as covered in Arbitration Agreement such judicial authority would be bound to refer to the parties to arbitration as held in Naveen Kedia & Others and I fully agree with the said proposition. Section 8 of the A & C Act provides that a judicial authority before which an action is brought in a matter which is a subject-matter of Arbitration Agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration. In the present case, the application being CA No. 123/2011 was filed in August 2011 prior to submitting its first statement to the petition. Thus, in view of foregoing reasons, the matter being the same in the petition and the J.V Agreement and the AOA of the company and in view of the mandatory requirement of Section 8 of the A & C Act, the application filed by the applicant i.e R5 is allowed consequently the CP No. 48 of 2011 is dismissed and the matter is referred to Arbitration as prayed for. All the interim orders stand vacated and all the applications pending if any as on date stand disposed off. No orders as to cost.

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