1. The petitioner hereinabove holding 49% shares in Goel MG Gasses Private Limited (the company) has filed this petition alleging acts of oppression and mismanagement in the affairs of the company. The respondents have filed an application under Section 8 of the Arbitration & Conciliation 'Act, 1996 seeking for referring the parties to arbitration on the ground that all the allegations in the petition relate to matters covered under an Arbitration agreement between the parties.
2. Dr. Singhvi appearing for the respondents submitted: The petitioner, the company and the shareholders of the company had entered into a Share Purchase and Cooperation Agreement on 12^th May, 1995 ( as amended on 7.11.1996 ) wherein the terms relating to the rights and obligations of the parties and also matters relating to the management of the company have been incorporated. This agreement provides for arbitration in case of disputes arising in connection with the said agreement under the rules of International Chamber of Commerce. Even though most of the terms of the agreement have been incorporated in the Articles of Association of the company as stipulated in the shareholders' agreement, yet, the arbitration clause in the agreement continues to prevail. Therefore, if the allegations in the petition relate to matters covered in the agreement, then, in terms of Section 8 of the Arbitration & Conciliation Act, the parties have to be referred to arbitration.
3. He, submitted: All the major allegations in the petition like the refusal of Goel Group to purchase 49% shares held by the petitioner at a fair price, non appointment of petitioner's nominees as directors, the manner of utilization of funds, alleged deadlock in the Board and shareholders' meetings, non provision of minutes/financial information required by the petitioner, implementation of projects by Goel Group which had been rejected by the petitioner, refusal to get the accounts examined by M/S Love Lock & Lewis despite request by the petitioner, not providing agenda of the meetings in a timely manner etc. are all matters covered in the shareholders' agreement. Therefore, as agreed to by the parties themselves in the shareholders' agreement, these matters should be referred to arbitration. The preamble to the Act makes it amply clear that when the parties have chosen their own forum to resolve the disputes, only that forum will have the jurisdiction to do so. Further, when Section 5 of that Act provides that there shall be no interference by the court when the parties have entered into an arbitration agreement, the petitioners cannot raise these issues before the Company Law Board. Since the agreement relates to the affairs of the company, any matter arising in the affairs of the company is a matter for arbitration. The matters on which the complaints have been raised in the petition, all arise from the agreement which is of commercial nature. In other words, as long as the subject matter is covered by an arbitration agreement, any grievance relating to the subject matter has to be referred to arbitration. Any objection regarding the applicability of arbitration clause in the agreement to the facts of the case has to be decided only by the arbitrator in terms of Section 16 of the Arbitration & Conciliation Act (Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums - 2003 6 SCC 503). It has been held in P. Anand Gajapathi Raju v. P.V.G Raju (2000 4 SCC 539) that when there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration. The Constitution Bench of the Supreme Court has also, while dealing with Section 16, has ruled that the arbitral tribunal may rule on its own jurisdiction and if there is any objection as to the applicability of the arbitration clause to the facts of the case, the same has to be raised before the arbitral tribunal. In Nimit Resources Inc. v. Essar Steels Limited (2000 7 SCC 497), the Supreme Court has again reiterated that in terms of Section 16 of the Arbitration & Conciliation Act, the arbitral Tribunal is empowered to rule on his own jurisdiction on matters referred to it. Similar decision has been given by Delhi High Court in J.B. Dadachanji v. Ravinder Narain (1999 DLT 663). In Kalpana Kothari v. Sudha Yadav (2001 (3) Arb. LR. 487), the Supreme Court has held that it is mandatory for a judicial authority to refer the parties to arbitration if there is an agreement to that effect. In Olympus Super Structures Private Ltd. v. Meena Vijay Khaitan (1989 5 SCC 651), the Supreme Court has held that all matters "connected" with the arbitration agreement can be gone into by the arbitral tribunal. In a number of cases, the Company Law Board itself has referred the parties to arbitration wherever it found that the disputes raised in the petitions related to matters covered under arbitration agreement (Navin Kedia v. Chennai Power CorporationShri Pinaki Das Gupta v. (SIC) Advertising Pvt. Ltd. -CP No. 47 of 2001: Bhadresh Kantilal Shah - 2000 2 CLJ 323: 20^th Century Finance Corporation v. R.F.B.Latex Ltd.Escorts Finance Ltd. v. G.R. Solven & Allied Industries Ltd. 4. The learned counsel further submitted: The parties have already invoked ICC Arbitration. The arbitration was invoked on 20.10.2003, the respondents appointed their arbitrator on 24.11.2003 and the petitioner appointed its arbitrator on 2.12.2003. In terms of Rule 6 of International Court of Arbitration Rules provides that pleas relating to existence, validity and scope of the arbitration agreement can be raised before the Arbitral Tribunal. This being the position, continuing with the petition before the CLB is likely to result in conflict of decisions. Since the scheme of the Act is to leave the parties to their own dispute resolution forum as agreed to by them, the matter should be referred to that forum.
5. Shri Mukherjee appearing for the petitioner submitted: It is not correct to say that all the allegations relate to matters covered in the shareholders' agreement. There are a number of allegations in the petition which do not relate to the matters in the shareholders' agreement. Even in the application filed by the respondents, in paragraph 11, they have only stated that substantial matters in the petition are covered in the shareholders' agreement and not all matters. The allegations of the petitioner relating to abuse of majority powers, siphoning of funds/assets of the company are not matters covered in the arbitration agreement. Therefore even assuming that a part of the allegations are covered in the agreement, since all the allegations do not arise out of the terms of the arbitration agreement, the parties cannot be referred to arbitration as decided by the Supreme -Court in Sukanya Holding Pvt. Ltd. v. Jayesh H. Pandeya (2003 5 SCC 531). Further, all the allegations relate to violation of the provisions of the Articles and Statute by abuse of majority by the respondents. The petitioner were not complaining about the breach of the terms of the agreement. All these allegations in the petition can be examined with reference to the terms of the Articles and the Act without recourse to any of the terms of the agreement. If so, as held by this Board in Gautam Kapur v. Limrose Engineering ( CP No. 18 of 2002), the parties cannot be referred to arbitration. In terms of Section 28 (3) of the Arbitration & Conciliation Act, the arbitral tribunal can only deal with the terms of the agreement and cannot examine violation of the provisions of the Act or the Articles. Once the Articles have been amended to incorporate the terms of shareholders' agreement, relationship between the parties are governed by the terms of Articles and not by the shareholders' agreement. In the Articles, there is no provision for referring the disputes between the shareholders to arbitration. It has been held by Supreme Court in Union of India v. Kishori Lal Gupta (AIR 1959 SC 1363) that once a new contract without arbitration clause is entered into, no recourse can be had on the arbitration clause in the original contract. The Company Law Board has also, in EIL Limited v. Mashobra Resorts Limited (2003 53 CLA 155) held that once terms of an agreement containing arbitration clause have been incorporated in the Articles of a company, then, the terms of the Articles would prevail over the agreement. Therefore once the terms of the shareholders' agreement have been incorporated in the articles with the omission of arbitration clause, that clause has no validity.
Further, the Punjab & Haryana High Court has categorically held in Sudershan Chopra v. CLB that matters covered under Sections 397/398 cannot be referred to arbitration. Most of the cases cited by Dr.
Singhvi relate to the interpretation of Section 11 of the Arbitration & Conciliation Act and in matters of partnership agreement or Contractual Agreements and none related to a petition under Sections 397/398 of the Act. It is to be noted that the respondents invoked the arbitration only after the petitioner had filed this petition. Therefore, this application should be dismissed.
6. In rejoinder, Dr. Singhvi submitted: In Sukanya case, the court held that there should be identity of parties because in that case there were 23 parties who were not parties to the Arbitration agreement and reliefs had been sought against most of them. However, in the present case, the relief sought is only against the company and therefore that case is not relevant to the facts of this case. In Limrose case, the respondents therein took a stand before the arbitrator that he had no jurisdiction and only the CLB had the jurisdiction. However, before the CLB, they took a stand that it was only the arbitrator who had the jurisdiction and not the CLB. Therefore, the principles of waiver, estoppel and acquiescence were applied by the CLB. Further, in that case, the company was not a party and there was total exclusion of the petitioners from the management. However, in the present case, there has always been a nominee of the petitioner on the Board with veto power. Further, none of the allegations made in the petition merits any consideration either for want of adequate material to substantiate the allegations or the allegations are matters which do not concern with or arising out of shareholders' right. Further, from various documents placed before the Bench, it could be seen that the petitioner has been supplied with all the information that was sought by it from the company and therefore, even on merits, it has no case. The provisions of Section 397 relate to grant of equitable relief for which the conduct of parties is of paramount importance and this case, the petitioner is guilty of non adherence of various terms of the agreement. The conduct of the petitioner has been criticized by the Supreme Court in Goyal MG Gases v. Griesheim GmbH (FAQ(OS) No. 251/98 when it tried to acquire shares Bombay Oxygen Company Ltd, in violation of the provisions of the shareholders agreement. Therefore, this application should be allowed.
7. Shri Mukherjee, in sur rejoinder, submitted: In an application under Section 8 of the Arbitration & Conciliation Act, there is no need to go into the merits of the case. As long as the allegations are not matters covered by the Arbitration Agreement, the petitioner is at liberty to raise these allegations. The respondents have placed a number of documents which relate to the merits of the case which cannot be considered at this stage.
8. I have considered the pleadings and arguments of the counsel. The admitted position is that the parties have entered into a Share Purchase and Cooperation Agreement in which there is an arbitration clause providing for ICC arbitration to be held in Delhi. A perusal of the various allegations in the petition shows that while there are certain allegations, as pointed out by Dr. Singhvi, on matters that are covered in the arbitration agreement, and there are also certain allegations as pointed out by Shri Mukherjee, which are not on matters covered under the arbitration agreement. Main thrust of the allegations of the petitioners is that the respondents, by misusing their majority strength are oppressing the petitioner. At this stage, it is not permissible to look into the merits of any of these allegations other than examining whether these allegations are on matters covered under the arbitration agreement and whether the parties should be referred to arbitration. Section 8 of the Act is mandatory and a judicial body is bound to refer the parties to Arbitration if the matter in dispute before the judicial body is covered under the arbitration agreement. It is true that in a number of cases, as cited by Dr Singhvi, this Board had referred the parties to arbitration in proceedings under Sections 397/398, but a perusal of those orders would show that in all those cases, the allegations related to breach of terms of agreements and not on violation of the provisions of the Articles or the Statute or in relation to the rights of the petitioners in their capacity as members of the companies. In the present case, most of the terms of the Shareholders agreement have been incorporated in the Articles. Once, the terms of the agreement are incorporated in the Articles, the relationship between the parties will be governed by the Articles as far as a petition under Section 397/398 is concerned. Therefore, if a shareholder alleges that there are acts of violation of the provisions of the Articles and that such acts amount either to oppression or mismanagement, then this Board alone, in exercise of its wide powers under Section 402 of the Act, grant appropriate relief. In a similar situation, in Limrose case, this Board has held "The examination of this Board would be whether the allegations are acts of oppression/mismanagement without referring the agreement and mould appropriate relief to put an end to the acts complained of, while the role arbitrator would be with reference to the specific terms of the agreement". Even otherwise, I find from the petition, that there are allegations (whether the petitioner would succeed in establishing them or not) on matters that are not covered under Arbitration agreement.
This being the case, I have to follow the decision of the Supreme Court in Sukanya' case wherein the Court had observed "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 Section 8" (para 15). Dr Singhvi urged that since the parties have already invoked Arbitration and have appointed arbitrators, to avoid conflict of decisions, the disputes in the present proceeding be referred to Arbitration. On a similar plea in Limrose case wherein even though the Arbitrator had held that he had jurisdiction and had also passed some interim orders, this Bench had observed "In other words the jurisdiction and scope of powers of this Board and that of the Arbitrator are different and both can adjudicate the matter before them. Because of the difference in the nature of powers, there is hardly any scope for conflict in their decisions". Further, none of the cases cited by the learned counsel for the respondents on the provisions of Section 8 or Section 16 relate to matters pertaining to a petition under Sections 397/398. As a matter of fact, except this Board and Punjab Haryana High Court, no other court has decided the applicability of Section 8 in a proceeding under Sections 397/398. In some cases, as cited by Dr Singhvi, this Board has held that if the allegations relate only to the terms of an agreement containing an arbitration clause, then the parties have to be referred to arbitration and in some cases where this Board found that the allegations could be examined without reference to the arbitration agreement, the applications under Section 8 were rejected. However, in Hind Samachar case, the Punjab and Haryana High court has held that the matters in a petition under Section 397/398 cannot be referred to arbitration. Thus, examining the present case in any manner, I find that there is no scope to refer the parties to arbitration. Accordingly, the application is dismissed.
9. The respondents will file their replies to the petition by 30.6.2004 and rejoinder, if any will be filed by 20.7.2004. The petition will be heard on 17^th August at 2.30 p.m.
After this order had been dictated, it was brought to my notice that the respondents have filed an application seeking for dismissal of the petition and also the instant application on the ground that the petitioner has already sold its shares to a third party and as such it has ceased to be a shareholder of the company and therefore this petition itself is not maintainable. This application will, be heard separately on a day to be notified.