Ozg Sarfaesi / DRT Lawyer
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It is not the law that a company
dispute can not be referred to Arbitration. It is also settled that the
jurisdiction of Company Law Board or the Company Court can not be taken away
upon showing the arbitration clause or the Agreement. The logic is very simple
that the Company Court is concerned with all the interested persons of the
Company either directly or indirectly when a winding-up petition is presented
before it. There are cases where the Company Court has laid so much emphasis on
the interests of the parties who are not actually before it. Thus the scope of
the jurisdiction of Company Law Board or the Company Court is very wider in
many cases and can not be taken away. The law at present is not clear as to
when a Company Law Board or the Company Court can overlook an Arbitration
Agreement and making the law clear is also a difficult task.
If there is a Share Purchase
Agreement or the JV Agreement between two companies and if there exist a
bonafide dispute between or among the parties, then, such a dispute can be
referred to Arbitration if the Agreement contains a clause or the parties
mutually agrees to it.
But, I am of the strong opinion
that the jurisdiction of the Company Law Board in entertaining important
petitions like a petition under section 397/398 of the Companies Act, 1956 and
the Company Court entertaining a petition for winding-up, can not be taken away
by an Arbitration Clause or the Agreement. I do strongly feel that ousting the
jurisdiction of the Company Law Board under section 397/398 etc. is not
possible and such a proposition will never be laid.
We have been seeing some
advancements in the Law of Arbitration in India and the land-mark Supreme Court
Judgment making it very clear that the Chief Justice under section 11 of
Arbitration and Conciliation Act, 1996 exercises judicial functions, has
further dealt-with the issue as to when a matter can be referred to Arbitration
and the ratio is as follows:
1. There must be a surviving lis
between the parties;
2. There Agreement should be in
existence.
3. The subject matter should be
capable of being arbitrated.
The Supreme Court has deal-with
the issue of referring the dispute to Arbitration upon the request of a party
to an agreement elaborately and also considered the impact of section 16 of the
Act which says that all objections including the jurisdiction of Arbitration be
raised before the Arbitrator itself.
Though the law is settled with
regard to the jurisdiction of the Company Law Board in entertaining certain
important petitions like a petition under section 397/398 of the Companies Act,
1956, the judgment of the Company Law Board, New Delhi, as extracted below
throws a light on further complications on the issue.
Extract of the Judgment:
BEFORE THE COMPANY LAW BOARD,
PRINCIPAL BENCH,
NEW DELHI
CA No.67/2003
In
C.P.No.17/2002
Present:Sh.K.C. Ganjwal,Member
In the matter of Companies Act,
1956, Section 397,398 and 399 Read with Section 402 and 403.
And
In the matter of:
PETITIONERS
Machino Plastics Ltd and Ors
Machno Finance Pvt.Ltd.
Vs.
RESPONDENTS
Caparo Maruti Ltd.
Caparo India Ltd
3. Mr. Anil Kumar Asthana
Mr. Angad Paul
5. Mr. Amber Paul
Mr. Colin G. Steele
O R D E R
K.C. GANJWAL
1. The above mentioned
petitioners have filed company petition 17/2002 against M/s Caparo Maruti Ltd
and others under Section 397/398 and 399 read with Section 402 and 403 of the
Companies Act, 1956. The main reliefs sought in the petition are as under:-
a) Declare Respondent No.2 to 6
disqualified of being directors of the company and remove the Respondnet Nos. 2
to 6 from the directorship of the Respondent Company as they are acting
contrary to their fiduciary relationship of the Respondent Company.
b) Direct the Respondent No.2 to
6 to give all details of monetary transaction between the respondent company
and the companies/firms owned and controlled by them and bring back the money
and make good the loss caused to Respondnet No.1 company.
c) Direct the Respondent No.2 to
6 to render all accounts of the respondent company and bring back the money
siphoned off, into the Respondent company, and pay-off the loans of the
Petitioner Companies.
d) Declare Mr.M.D. Jindal, the
representative of the Petitioner Companies, as permanent Chairman of the
Respondent Company as would be in the best interest of the Respondent No.1
company.
e) Direct an independent enquiry
into the affairs of the Respondent company
2. The respondent No.s 1 and 2
companies namely, M/s Caparo Maruti Ltd.,M/s Caparo India Ltd; have filed
present application No.67/2003 under section 8(1) read with Section 45 of the
Arbitration and Conciliation Act 1996.The case is covered under the provisions
of Section 45 of Arbitration and Conciliation Act 1996. The respondents have
stated in their application that the allegations made in the petition arise out
of the Joint Venture Agreement (hereinafter referred to as JVA) dated January,
7, 1994 between the petitioner and the respondent, wherein under Article 11,
the parties have agreed to refer and determine all claims, disputes,
controversies, disagreements, all differences between the parties arising out
of or in connection with the agreement by arbitration. The said Article 11 of
JVA dated 7.1.1994 reads as under:-
“Article 11 Arbitration
Any and all claims, disputes,
controversies, disagreements or differences between the parties arising out of
or in relation to or in connection with this agreement, or with a breach
thereof, which cannot be satisfactorily settled by correspondence or mutual
conference between the parties hereto, shall be determined by arbitration in
accordance with the then prevailing rules of Conciliation and Arbitration of
the International Chamber of Commerce by one or more arbitrators appointed in
accordance with the such Rules upon written request of any party hereto. The
site of such arbitration shall be London, United Kingdom. The decision of such
Arbitrator or Arbitrators shall be final and binding upon the parties hereto
and judgement thereon may be entered in any court having jurisdiction thereon;
application may be made to such court for judicial acceptance of the award
and/or for order of enforcement, as the case may be. For the purpose of any
such arbitration, all Jindal companies and Jindal shall be considered as a
single party and also Caparo Group of Companies shall be considered as a single
party and they shall receive and serve all notices and pleadings and make all
designations in respect of such arbitration acting for themselves and any or
all of their companies.”
3. Pursuant to the aforesaid
agreement, M/s Caparo Maruti Ltd. was incorporated in 4th April, 1994 for the
manufacture and supply of components and assemblies for Maruti Udyog Ltd. in
particular. With regard to the appointment of Chairman of the Board of M/s
Caparo Maruti Ltd., Artilce 150 of the Article of Association provides that the
directors shall from time to time elect from amongst them such a director as
recommended and nominated by Caparo Group Ltd. to be the Chairman for the Board
and determine the period for which he is to hold office. Further, in accordance
with the aforesaid agreement, the shareholding of the company was to be in the
following ratio;-
a. Caparo Group 60%
b. Maruti Udyog Ltd. 20%
c. Jindal Group 20%
4. The respondent company namely,
M/s Caparo Maruti Ltd has ratified and has adopted the JVA by way of resolution
of Board of Directors dated 22.7.2003. On 27th Feb 2003, the Caparo Maruti Ltd.
in accordance with Article 6.04 of the JVA and also Article 150 of the Articles
of Assocaition nominated Mr. Angadh Pal as the Chairman of Board of Directors
of M/s. Caparo Maruti Ltd.
5. The respondents have submitted
that the various allegations made in the petition and the substance of the disputes
alleged in the petition are in respect of matters covered in the JVA. The
foundation of the main petition is nothing but certain issues arising out of
the terms of the JVA . In this connection, the respondents have referred to
para 6(i) to (x) and (xiii) of the petition, wherein it is alleged that the
applicant company M/s Caparo Maruti Ltd was incorporated by Mr. M.D. Jindal on
the request of Lord Swaraj Paul and the Machino Group who is wholly and solely
responsible for the formation of this company and that all the initial expenses
for over a period of one year was borne by the Machino Group and that the
Caparo Groups’ contribution came only a year after its incorporation when the
company had already passed its take off stage.
6. The applicants have also drawn
attention to para(xi) of the petition wherein it is mentioned that for the
purpose of maintaining relationship and because of the close family
relationship between the two groups only the director suggested by Caparo Group
were appointed as Directors and Mr. M. D. Jindal who is also the Chairman of
Machino Plastics Ltd was appointed as the Chairman of the company at its duly
convened Board of Directors Meeting and it was an understanding between the
groups that Mr. M.D. Jindal would remain Chairman throughout the life.
Therefore, he has been acting as Chairman of the company and has been managing
its affairs even before Caparo came into picture and has been getting full
cooperation from the Management and the employees of the company till recent
past. Because of his good management and business acumen just in a short span
of seven years the turn over of the company rose from Rs.19.57 crores in the
year 1997-98 to Rs. 56.62 crores. in the year 2002-2003 and reserves of the
company stood at 7,08,07,749.00 as on 31.12.2002 as per information given to
the Board of Directors in the meeting held on 7.2.2003.
7. In para 12 of the main
petition the petitioners have pointed out that machino group is not only the
founder/promoters of Caparo Maruti Ltd. but have also funded the company from
time to time. It is also stated that Mr.M.D. Jindal was appointed for lifetime
Chairman with unwritten understanding and cannot be removed. These allegations
have been denied by the respondents in their present application in question.
The respondents have further submitted that the interim orders sought under
para 20 of the petition are in relation to the JVA such as removal of Mr.
Jindal from Chairmanship and wholetime directorship or restraining some
directors from participating and /voting in the Board Meeting of the company as
also directing respondents not to act contrary to the interest of the Mr. M.D.
Jindal. Accoridng to applicants/Respondents these are all matters covered under
the JVA.
8. The respondents/applicants
have submitted before this Board that company law board is a judicial authority
within the meaning of Sec 8(1) of the Arbitration and Conciliation Act, 1996.
The present action brought by the petitioner in their main petition is the
subject matter of the Arbitration Agreement (JVA) and therefore liable to be
referred to Arbitration in terms of Section 8(1) Arbitration Act. The
respondents in the premises have prayed that this Hon’ble Court may be pleased
to refer the parties for arbitration in respect of all or any of the disputes
arising out of, in connection with or in relation to the agreement.
9. In brief, the
respondents/applicants in this application have submitted that there is an
Arbitration agreement, the subject matter of the main petiton is the same as
the subject matter of the arbitration agreement . The respondents have relied
on Article 11 of the Joint Venture Agreement dated 7.1.1994. They have
mentioned that this clause has to be read alongwith the definition of parties
contained in the beginning of the said agreement, wherein it is mentioned that
M.D. Jindal, Chairman of M/s Machino Plastics Ltd. and M/s Machino Techno Sales
Ltd. and their associate companies (hereinafter called JINDAL Capital which
expression shall include its successors and assigns). The respondents have
further mentioned that Machino Plastics Ltd. and Machino Finance Ltd.
(previously Machino Techno Sales Ltd. are named as parties in the arbitration
agreement as all Jindal Companies and Jindal shall be considered as a single
party as mentioned in the agreement. The respondents have further said that an
arbitration agreement is required to be in writing but need not be signed by
the parties. An arbitration agreement has to be in writing both under the
Arbitration Act 1940 and 1996. The respondents have further stated that no
signature is required, provided the intention of the party is clear (JK Jain
and Ors. Vs. DDA and Ors. (AIR 1996 SC 318), Banarasi Das Vs. Cane
Commissioner, UP (AIR 1963 SC 1417). The applicants have further submitted that
wherever the provisions of Arbitration Act 1996 are in pari materia with the
Arbitration Act 1940, courts have always accepted that the long standing legal
position will continue to apply. According to respondents the contentions of
Section 7 (2) of Arbitration Act 1996 are peri meteria with the contentions of
section 2(1) (a) of the 1940 Act as far as the requirements of writing is
concerned. No contrary intention can be implied from Section 7 (3) of the new
Act of 1996 which enumerates certain circumstances under which an agreement
would be said to be in writing.
10. The respondents have argued
that the arbitration agreement in question was signed by Mr. M.D. Jindal and he
had express authority to enter into an arbitration agreement on behalf of the
petitioners. According to them this can be inferred from the following
aspects:-
a. Mr. M.D. Jindal admittedly is
the promoter of the petitioner companies in main the main petition.
b. The said companies are owned
and controlled by Mr. Jindal and members of his family.
c. Mr. M.D. Jindal is the
Chairman of the petitioner companies.
d. The application for allotment
of shares of one of the companies has been signed by Mr. M.D. Jindal.
e. The Meeting of the Board of
Directors of M/s Caparo Maruti Ltd. of 10th August, 1994 had express reference
thereof in the share application form.
f. Disclosures/statements made in
the prospectus and other company records.
g. Article 14 of the Article of
Association of M/s Caparo Maruti Ltd which expressed the mandates of JVA that
the paid up share capital shall always remain in the following proportion:-
(i) Caparo Group 60%
(ii)M.D. Jindal 20%
(iii)Maruti Udyog Ltd. 20%
11. The respondents have further
stated that the allotment of shares has been made from the quota of Mr. M.D.
Jindal and at the instance Mr. Jindal who represents the interest of the said
shareholders in the Board of Caparo Maruti Ltd. The scope of Mr. Jindal’s
authority vis. a vis the petitioner companies is a matter within the special
knowledge of petitioner and therefore, the burden of establishing that he had
no authority on behalf of petitioners lies on them. (Section 106 Evidence Act).
12. The respondents also relied
on provisions of Section 46 of the Companies Act.. 1956 that implied authority
is sufficient for the purpose of binding up a company in a contractual matter.
Accordingly, Mr. Jindal had implied and ostensible authority to act on behalf of
the petitioner companies.
13. The respondent have further
argued that the principal respondents in the main company petition are Caparo
Maruti Ltd. and Caparo Group Ltd.. The Caparo Group Ltd. is the signatory to
the arbitration agreement. The Caparo Maruti Ltd. was not incorporated on the
date of signing of Joint Venture Agreement but is bound by the same, since it
is a pre-incorporation contract executed by the promoters of the said company.
The respondents state that such contracts are binding on the petitioner under
Section 15(1)(h) and Section 19(E) of the Specific Relief Act. They have relied
upon on the companyn V.P. Rao (AIR 1984 AP 176 and Commissioner of IT( AIR 1953
Patna 298). Further the directors in their meeting held on 4.6.1994 and rectified
the pre-incorporation contract dated 7.1.1994. A copy of the Board resolution
was also filed.
14. The respondents also
submitted that the parties to the main petition are also to the parties to
arbitration agreement and the subject matter of the company petition is covered
by the arbitration agreement. The language of the arbitration agreement is very
wide since its uses phrase like “arising out of “ --------------. According to
the respondents, the allegations in the petition are two fold (a) to protect
the Chairmanship of Mr. M.D. Jindal and (b) allegation that the respondents
have acted against the interest of the company in giving loans to certain
concerns. These two aspects are specially covered in Article 7 and 11 of the
Joint Venture Agreement . The respondents have therefore submitted that all
conditions of Section 8 of Arbitration and Conciliation Act, 1996 are satisfied
and this Board has no discretion but to refer the matter for arbitration as per
Joint Venture Agreement. The learned counsel for respondent has relied on the
following case laws:-
i. Naveen Kedia and Ors Vs.
Chennai Power Generation Ltd and Ors.(1998) 4 Comp.LJ 128(CLB)
ii. Escorts Finance Ltd. Vs. G.R.
Solvents and Allied Industries Ltd and Ors(1999)2Comp LJ 534(CLB)
iii. Khandwala Securities Ltd and
Ors Vs. Kowa Spinning Ltd and Ors.(2000)1 Comp.LJ 78 (CLB)
iv. 20th Century Finance Corpn.
Ltd. Vs. RFB Latex Ltd and Ors.(2000)1Comp.LJ 104 (CLB)
v. Bhadresh Kantilal Shah Vs.
Magotteaux Interntional and Ors(2000)2 Comp LJ 323 (CLB)
vi. Hely Hutchinson Vs. Brayhead
Ltd and Anr.(1967)3 All E.R.98
vii. Mohta Alloy and Steel Works
V. Mohta Finance and Leasing Co.Ltd.(1997)3 Comp LJ 183(Del)
viii. Freeman and Lockyer V.
Buckhurst Park Properties(Malgal) and Anr.(1961)1 All E.R 630.
ix. Pinki Das Gupta Vs. Maadhyam
Advertising P.Ltd and Ors.(2002)4 Comp.LJ 318 (CLB)
x. Municipal Corpn. Of Delhi Vs.
Gurnam Kaur (1989) 1 SCC 101.
xi. Commissioner of Income
Tax.,Bihar and Orissa V. Bhurangiya Coal Co. AIR 1953 Patna 238.
xii. J.K. Jain and Ors. V. Delhi
Development Autority.(AIR 1996 SC 318)
xiii. Vali. Pattabhirama Rao and
another Vs. Sri Ramanuja and Ors & Rice Factory P.Ltd.and Ors. (AIR 1984 AP
176)
xiv. Doypack Systems P.Ltd. V.
Union of India and Ors .(1988 2 SCC 299)
xv. Renusagar Power Co. Ltd. V.
General Electric Co.and Another (1984)4 SCC 679
xvi. Banarsi Das V. Cane Commr.UP
and another (AIR 1963 SC 1417.
xvii. Delhi Development Authority
V. Skipper Construction Co.P.Ltd and Anr.(1996) 4 Comp.LJ 233(SC)
15. The learned counsel for
petitioners in the main petition submitted that the Arbitration Agreement was
not applicable to them. The arbitration agreement should be between the parties
in writing and if such document is in writing, it should be signed by the
parties under the provisions of Section 7, 8, 44 and 45 of the Arbitration and
Conciliation Act, 1996 and the first schedule thereto.
16. The learned counsel for
petitioners submitted that the provisions of Section 7 are two fold namely, the
arbitration agreement shall be in writing and must be signed by the parties an
arbitration agreement is in writing, if it is contained in a document signed by
the parties or in exchange of letters, telegrams etc. Section 8 of the
Arbitration and Conciliation Act indicates the power of the judicial authority
to refer the parties to arbitration before which an action is brought in a
manner which is the subject of an arbitration agreement, if a party so applies
not later than when submitting his first statement on the substance of the
dispute.
17. The perusal of sections 44
and 45 and first schedule of the Arbitration and Conciliation Act 1996
indicates that to invoke arbitration clause in an agreement, there must be
arbitration agreement in writing signed by the parties in terms of Section
7(4)(a) and Section 45 read with the first schedule, where the word “signed by
the parties” are missing as argued by the learned counsel for respondent which
are contrary to their pleadings as the act of 1996 has been invoked by the
applicants. The learned counsel for petitioner submitted that position in
Arbitration Act 1986 has changed the Act of 1940.
18. The learned counsel further
submitted that the alleged arbitration agreement is contained in a document
referred to as Joint Venture Agreement (JVA) dated 7.1.1994 and the said JVA is
not signed by any person for and on behalf of the petitioner namely, Machino
Plastics Ltd. and Machino Finance Pvt. Ltd. Hence arbitration agreement under
question is not signed by the petitioner companies and the said joint venture
agreement is also not signed by Mr. Jindal for and on behalf of any person.
Further no person has signed on behalf of M/s. Caparo Maruti Ltd and Caparo
India Ltd or other respondents mentioned in the petition. The learned counsel
was of the view that the authorities cited by the applicants under arbitration
act, 1940 namely, JK Jain and Ors Vs. DDA and Ors (AIR 1996 SC 318) and Renu
Sagar Power Co. Ltd Vs. Journal Electric Co. Ltd (AIR 1984-4 SC Cases 6,7,9)
are in relation to Arbitration Act, 1940 and are not applicable in relation to
Arbitration and Conciliation Act, 1996. The application is liable to be
dismissed on this ground alone.
19. The learned counsel for
petitioners further submitted that Section 8 or Section 45 of Arbitration Act
come into play when the parties in the legal proceedings before the judicial
authority and parties in the arbitration proceedings or arbitration agreement
are the same or substantially the same. The learned counsel submitted that in
the present proceedings under Section 397/398 of the Companies Act, 1956 the
signatories to the purported JVA dated 7.1.1994 are neither the petitioners nor
the respondents. He further submitted that none of the parties in the petition
are signatories to the JVA. The three parties which are signatories to JVA
namely, Maruti Udyog Ltd. Caparo Group Ltd. and Mr. M.D. Jindal in his
individual capacity are the only signatories and it is clear that the parties
before Company Law Board and the parties to the said JVA are not the same. The
learned counsel therefore, submitted that an application under Section 8 and 45
of the said Arbitration Act shall fail if the pre requisites to invoke the
arbitration clause is not satisfied namely, the parties in the petition are not
the same as the parties to the Joint Venture Agreement. He relied on the
following authorities and submitted that in all the authorities cited below by
the applicant, the parties to the petition are common to the arbitration
agreement whereas in the present case the parties are non peri-materia to the
JVA :-
a. Naveen Kedia & Ors Vs
Chennai Power Generation Ltd. and Ors. (1999(Vol-95)CC 640)
b. 20th Century Finance Corporation
Ltd. Vs RFB Latex Ltd and Ors(1999)(Vol-97)CC 636
c. Khandwala Securities Ltd. Vs
Kowa Spinning Ltd. and Ors (1999(Vol-97)CC 632
d. Pinaki Das Gupta Vs. Madhyam
Advertising Pvt. Ltd and Ors. (2002(4 Com.LJ 318 CLB.
20. The learned counsel for petitioner
relied on the judgement of Company Law Board n the case of Bhadresh Kanti Lal
Shah Vs. Magotteaux International and Ors 2000(2) CLJ 323(CLB) which is in
their favour as it supports the contention that if the parties are not the
signatories to the arbitration agreement, application under Seciton 8 or 45 of
the Arbitration Act cannot be allowed and the matter cannot be referred to
arbitration. The ratio of the judgement is if a company is not a party to the
arbitration agreement, the said agreement is not binding on the company. The
learned counsel has referred to the judgement Gowri Spinning Mills Ltd. Vs.
Adimoolam and Anr. 2002 Supp. 375 Arbit LR(Madras) which holds that if all the
shareholders have not signed the agreement, some of these shareholders cannot
arbitrarily bind the company.
21. The learned counsel has
further submitted that the joint venture agreement is not signed by any person
for and on behalf of Caparo Maruti Ltd., hence, the said JVA is not a valid
agreement being pre-incorporation agreement which is void and not enforceable
in the eyes of law . He relied on the following judgments
i. Seth sobhag Mal Lodha &
Ors. Vs. Edvered Mills Co.Ltd (1972) 42 Com. Cases.
ii. New Borne Vs. Sensolid Great
Britain Ltd.(1954) Vol 34 Com. Cas.159.
22. The learned counsel also
submitted that the Specific Relief Act would not come to the rescue of
respondents as the objective of the Specific Relief Act is to provide a
specific relief as may be obtained in a civil court and not in other courts such
as revenue, criminal and other tribunals like Company Law Board.
23. With reference to Mr. M.D.
Jindal, as Chairman of Machino Plastics and Machino Techno Sales Ltd. the
learned counsel for petitioner have submitted that Mr. Jindal is not even a
shareholder on the date of the petition in these two companies. Further
reference to Machino Plastics and Machino Techno Sales Ltd. and their associate
companies and Jindal Companies are vague indefinite and without any definition,
which cannot bind another separate juristic persons in absence of specific
authority. Mr. M.D, Jindal is only non executive Chairman of the Board and does
not carry with him any executive authority and he is not empowered by the Board
of Directors to bind the company. The learned counsel supported his contentions
with the following judgments:-
i. Hindustan Petroleum Vs. Sardar
Chand (1991 71 Com.Cas 257.
ii. Nibro Ltd. Vs. National
Insurances (1991 70 Com.Cas. 388
iii. K.N. Shankaranarayanan Vs.
Shree Consultants (1994 80 Com.Cas.558.
24. The learned counsel for
petitioner also submitted that no person including Mr. M.D. Jindal, has signed
the arbitration agreement for and on behalf of the petitioner companies. There
is no express or implied authority and hence there is no question of discharge
of burden of proof of authority in terms of section 106 of Indian Evidence Act
1872, which question will arise only if some person exercises such authority by
affixing signatures for and on behalf of the petitioner company.
25. The learned counsel for
petitioner also submitted that the subject matter of the petition and the
proposed arbitration agreement are different, which is evident from the claim
by the respondent before Secretariat of International Chamber of Commerce. It
is evident from the claim that none of the parties to the claim, is a party to
the arbitration agreement as alleged.
26. The learned counsel for
petitioners has also brought to my notice that a Civil Court of Competent
Jurisdiction has already held that a person who is not signatory to JVA dated
7.1.1994 in his personal capacity cannot be bound by Arbitration agreement,
which is on record in the case of Rajiv Jindal Vs. Caparo Maruti Ltd. and Ors.
as per order passed by Civil Judge Alipur, West Bengal on 24.7.2003.
27. The learned counsel mentioned
that the allotment of shares to the petitioners have been made afresh and not
by transfer. It is not factually correct to say that the shares allotted to the
petitioners are from 20% quota or shares earmarked to Mr. M.D.Jindal and Associates.
The learned counsel further submitted that even if the allotment is made within
the limit of 20% paid up capital earmarked for Mr. Jindal, the petitioners are
not automatically bound by the terms of JVA as the petitioners have not entered
into any agreement afresh to bind the new shareholders nor the petitioners
agreed or signed any arbitration agreement as alleged and Mr. M.D. Jindal on
his own cannot bind independent legal persons such as petitioner companies.
According to the learned counsel for petitioners the reference to share
application and Board Resolution only demonstrates the number of shares to be
allotted and does not constitute fresh legal agreement between the petitioners
and the respondents. Therefore, the question of lifting of corporate veil is
not warranted as argued by the petitioners viz.(DDA Vs. Skipper Construction
Company (P) Ltd & Anr.(1996) 4 CLJ 233 SC). The learned counsel for the
petitioner further submitted that the arguments of respondents that the Jindal
and Associates have wide meaning and can be interpreted widely is not
applicable in this case as it would amount to traversing beyond the elements of
section 7,8 and 45 and first schedule of the arbitration and Conciliation Act,
1996 which specifically requires that any document in writing should be “signed
by the parties”. The learned counsel submitted that the Supreme Court judgement
in Municipal Corporation Delhi Vs. Gurnam Kaur 1989 1 SCC 101 and M/s Doy Pack
Systems (P) Ltd. Vs.Union of India and Ors. 1988 2 SCC 299 are not applicable
in this case.
28. .The learned counsel further
submitted that the issue of Chairmanship of Mr. M.D. Jindal is not the only
issue in this petition. There are other serious issues of financial
mismanagement and misfeasance of funds by the majority shareholders. The
unsecured loan to the tune of Rs.6.4 Crores have been given to the group
companies of the respondent shareholders. The companies to which these
unsecured loans are given, are on and controlled by the respondents and the loan
amounts which are equivalent to the share capital brought in by the respondent
in the company prove the siphoning off funds. According to learned counsel for
petitioner, these allegations cannot be gone into and decided by the
Arbitrator.
29. The learned counsel for
petitioner submitted that the present application under Section 8 or 45 of the
Arbitration and Conciliation Act, 1996 is liable to be dismissed and their
petition be heard on merits.
30. I have considered the
pleadings and written submissions including additional written submissions of
both parties as well as oral submissions of the learned counsels of both sides.
The main point to be considered is whether the Joint Venture Agreement dated
7.1.94 signed among three parties namely, M/s Maruti Udyog Ltd, M/s Caparo Gp.
Ltd, and Mr. M.D. Jindal is applicable to the petitioners in the main petition
viz. Machino Plastics Ltd. and Machino Finance Ltd. Before I deal with this
issue it will be pertinent to look to the provisions of Sec 7,8 and 45 of Arbitration
and Conciliation Act, 1996 which provides as under:
31. Section 7 of the Arbitration
Act deals with the meaning of Arbitration Agreement which arises between the
parties in respect of a defined legal relationship, whether contractual or not.
The Arbitration Agreement shall be in writing the agreement is in writing if it
is contained in a document signed by the parties, an exchange of telex
,letters, telegrams or other means of telecommunication or an exchange of
statement of claim and defense or a reference in a contract to a document
containing an arbitration clause constitute an arbitration agreement if the
contract is in writing and the reference is such as to make that arbitration
clause part of the contract.
32. Section 8 of the Arbitration Act
deals with powers of judicial authority to refer parties to arbitration where
there is an arbitration agreement. Section 45 of the Arbitration Act refers to
the agreement under New York Convention Awards defilned under Section 44 of the
Arbitration Act and states that at the request of one of the party of any
person claiming through or under him, refer the parties to arbitration, unless
the judicial authority finds that the said agreement is null and void,
in-operative or incapable of being confirmed. The learned counsel for
petitioners have relied their arguments mainly on the provisions of Section
7,8, 44 and 45 that the parties in question namely, Machino Plastics Ltd. and
Machino Techno Sales Ltd. which are parties to the main petition have not signed
Joint Venture Agreement of 7.1.1994.
33. It is true that both the
parties in the main petition namely, Machno Plastics and Machno Techno Sales
Ltd. have not signed Joint Venture Agreement in question. Now the issue before
me is to decide whether Mr. M.D. Jindal who has signed Joint Venture Agreement
can be said to have signed this agreement on behalf of these two companies and
has committed them to the Joint Venture Agreement. Let me examine the
contention of the arbitration agreement, the Joint Venture Agreement was made
in 1994 for establishing the company with limited liability in the name of
Caparo Maruti Ltd. as a public limited company under the C.A, 1956. The Maruti
Udyog Ltd. and Co-promoters made this agreement to establish the Joint Venture
Co. for the purpose of manufacturing the components and assemblies in India for
Maruti Udyog Ltd. in particular and industry in general. It is mentioned in
Article 3 of the Joint Venture Agreement that the issued capital shall be
subscribd by the parties in the following proportion;-
Caparo 60%
Jindal 20%
MUL 20%
34. The above ratio shall be
irrespective of the fact that whether the shares are partly paid or fully paid
up. That in the event of any restriction/change in the ratio of allotment of
shares to the public, the ratio of shares between Maruti Udyog Ltd and
Co-promoters (namely Jindal and MUL) would always remain the same as above. The
agreement has been signed by all the three parties. The agreement may only be
amended in writing by the parties and the agreement shall continue in effect
for an indefinite term.
35. Looking to the Article 11 of
the JVA which deals with Arbitration Clause, it is clearly mentioned that any
and all claims, disputes, controversies, disagreements or differences – between
the parties arising out of or in relation to or in connection with
disagreement, or with a breach thereof, which cannot be satisfactorily settled
by correspondence on mutual conference between the parties hereto, shall be
determined by Arbitration in accordance with the then prevailing rules of
Conciliation and Arbitration of the International Chamber of Commerce. The site
of such arbitration shall be in London, United Kingdom. It is further mentioned
in this Article that for the purpose of any such arbitration, a Jindal
Companies and Jindal shall be considered as a single party and also Caparo Gp.
of Companies will be considered as a single party and they shall receive and
serve all notices and pleadings and make all designations in respect of such
arbitration acting for themselves and any or all of their companies.
36. In the title clause of the
JVA, it is defined Mr. M.D. Jindal and person having his residence at A-10, New
Friends Colony, New Delhi –65 and Chairman of M/s Machno Plastics Ltd. and M/s
Machino Techno Ltd. and their Associate Companies (hereinafter called Jindal)
which expression shall include its successors and assigns. However, in the end
of the agreement Mr. M.D. Jindal has not signed on behalf of any aforesaid
company.
37. Now the question arises
whether or not Mr. M.D. Jindal had express or implied authority to enter into
any arbitration agreement on behalf of the petitioner in the company petition.
In this context Mr. M.D. Jindal admittedly is the promoter of the petitioner
companies and has been working as Chairman of the said companies. These companies
had been floated by Mr. Jindal and are owned and controlled by him or members
of his family. The resolution passed in the Board Meeting of 10.8.1994 of M/s
Capara Maruti Ltd; specifically makes a mention of the Joint Venture Agreement
dated 7.1.1994 while agreeing to allot equity shares to the petitioner
companies. Similarly, the share application form filed by both petitioner
companies to get the shares had clear mention about Board resolution of Caparo
Maruti Ltd. of August, 10, 1994.
38. Similarly, Article 14 of
Articles of Association of Caparo Maruti Ltd. indicates that the paid up share
capital shall always remain in the same proportion as has been mentioned in the
Joint Venture Agreement. The allotment of shares had been made out of the 20% quota
of Mr. Jindal and he had signed one of the application of the petitioner
company. Mr. Jindal admittedly represents the interest of these shareholders in
the Board of Caparo Maruti Ltd. and he was till recently Chairman of Caparo
Maruti Ltd.
39. From the facts mentioned
above including the written submission as well as oral submissions made by the
learned counsels for both the parties, I tend to agree with the learned counsel
for the petitioners that although Mr. Jindal is shown in title clause of Joint
Venture Agreement as Chairman of M/s Machno Plastic Ltd and Machno Techno sales
Ltd. and their associates but he has not signed the agreement on their behalf.
40. The learned counsel for
Respondent has been relying on the circumstantial evidence such as mention of
JVA in the applications of allotment of shares and Mr Jindal having stake in
all the three companies at one time or the other etc, but there is no
documentary evidence brought on records to make a conclusive proof that Mr.
Jindal had explicit or implied authority to sign JVA on behalf of both the
petitioners companies. Nothing is on was record to conclude that petitioners
company have been made party to Joint Venture Agreement either while rectifying
the same or passing any Board resolution etc.
41. The provision of section 8 of
Arbitration and Conciliation Act, 1996 are epicure that the parties have to
sign the agreement. In the instant case, there is nothing to show that both
parties to the present petition had sign the JVA.
42. The substantial relief sought
by the petitioners in the main petition are:- Declare Mr. Jindal as permanent
Chairman of Respondent company and financial irregularities. At best the first
issue that is of the appointment of Mr. Jindal can form subject matter of
arbitration and the second issue of financial irregularities and removal of
Respondent No. 2 from the Directorship would not fall under the ambit of
arbitration agreement. In the recent judgement the Hon’ble Supreme Court has
laid down, which was not brought to my notice by the either party, in para 13
to 17 of Sukanya Holding (P) Ltd. Vs. Jayesh H. Pandya and another (2003) Comp.
L) 68 (SC) which reads as under (13 to 17): -
Para 13:-Secondly, there is no
provision in the Act that when the subject matter of the suit includes subject
matter of the arbitration, agreement as well as other disputes, the matter is
required to be referred to arbitration. There is also no provision for
splitting the cause or parties and referring the subject matter of the suit to
the arbitrators.
Para 14 :- Thirdly, there is no
provision- as to what is required to be done in a case where some parties to
the suit are not parties to the arbitration agreement. As against this, under
section 24 of the Arbitration Act, 1940, some of the parties to a suit could
apply that the matters in difference between them be referred to arbitration
and the court may refer the same to arbitration provided that the same can be
separated from the rest of the subject matter of the suit. Section also
provided that the suit would continue so far as it related to parties who have
not joined in such application.
Para 15 :- The relevant language
used in section 8 is – ‘in matter which is the subject matter of an arbitration
agreement’. Court is required to refer the parties to arbitration. Therefore,
the suit would be in respect of ‘a matter’ which the parties have agreed to
refer and which comes within the ambit of a 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 and there is no question of application of
section 8. The words ‘a matter’ indicates entire subject matter of the suit
should be subject to arbitration agreement.
Para 16:- The next question which
requires consideration is- even if there is no provision for partly referring
the disputes to arbitration, whether such a course is possible under section 8
of the Act ? In our view, it would be difficult to give an interpretation to
section 8 under which bifurcation of the cause of action that is to say that
subject matter of suit or in some cases bifurcation of the suit between parties
who are parties to the arbitration agreement and other is possible. This would
be lying down a totally new procedure not contemplated under the Act. If
bifurcation of the subject matter of a suit was contemplated the legislature
would have used appropriate language to permit such a course. Sine there is no
such indication in the language, it follows that bifurcation of the subject
matter of an action brought before a judicial authority is not allowed.
Para 17 :- Secondly, such
bifurcation of suit in two parts, one to be decided by the arbitration Tribunal
and other to be decided by the civil court would inevitably delay the
proceedings. The whole purpose of speedy disposal of dispute and decreasing the
cost of litigation would be frustrated by such procedure. It would also
increase the cost of litigation and harassments to the parties and on occasions
there is possibility of conflicting judgments and orders by two different
forums
43. The Hon’ble Supreme Court has
held that there is no provision in the Arbitration Act when the subject mater
of the suit includes the subject matter of the arbitration agreement as well as
other disputes, the matter is required to be referred to arbitration. There is
also no provision for splitting the cause or parties and referring the subject
matter of the suit to the arbitrators. It is further held that the subject
matter of the suit should be subject of arbitration agreement.
44. From the perusal of the main
reliefs sought in the company petition as well as JVA it is revealed that the
parties to the petition and JVA are not similar and also subject matter of the
petition is not totally covered under the clauses of JVA. Accordingly the
application of the respondent for referring the case to arbitration cannot be
allowed as it would amount to splitting of subject matter of the petition more so
all the parties to the petition have not signed the JVA. As such, their cause
of action cannot be referred to arbitration for redressal of their grievances.
45. The application is
accordingly dismissed. The Respondents are directed to file their reply to the
main petition within four weeks and rejoinder, if any, may be filed by the
petitioners within two weeks. List case for hearing of the main petition on 9th
Feb 2004 at 10.30 a.m. .
46. There is no order as to the
cost.
(K.C. GANJWAL)
Member
New Delhi,
Dated, the October, 2003.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
