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
A brief:
Alternative Dispute Resolution
Mechanism (ADR) is encouraged in view of the fact that there exists an
unreasonable delay in the Courts. Among the other modes of Alternative Dispute
Resolution (ADR), dispute resolution through Arbitration in accordance with the
provisions of Arbitration and Conciliation Act, 1996 is being encouraged now.
Though it is strongly felt that
the ADR is to be encouraged in view of the delay in courts etc., there are
critics criticizing the Arbitration Mechanism and especially when it is forced
on a party. Constitutional Courts have discussed the scope of many provisions
under the Arbitration and Conciliation Act, 1996 from time to time. But, when
it comes to understanding the ratio laid-down by the Constitutional Court in
SBP & Co. v. Patel Engg. Ltd (2005 (8) SCC 618), in my opinion, there is no
clarity. As per my understanding, the ratio laid-down by the Apex Court and
followed subsequently on the scope of section 11 of Arbitration and
Conciliation Act, 1996 is automatically applicable to an application under
section 8 of the Arbitration and Conciliation Act, 1996. Many questions tend to
arise still on various provisions of Arbitration and Conciliation Act, 1996 and
we also require few more reforms in the law taking ground realities into
consideration.
But, it is true that when the
parties are agreed for referring their dispute to an ‘Arbitrator’ and the
agreed on all connected issues, then, the Arbitration Mechanism is better
suited for getting the disputes resolved. Despite all the encouragement to the
ADR in view of the apparent failure of courts, the ADR through Arbitration is
also being criticized and the focus will be on bringing further reforms on the
law of Arbitration and especially Domestic Arbitration Mechanism in India. The
ADR is to be seen from two angles ie., from the point of view of the industry
and from the point of view of the common man. The issue of providing speedy and
efficient dispute redressel mechanism is a larger issue to deal with and it
will emerge as imperative soon forcing the governments to think at the ground
realities and the required reforms. But, when we look at the dispute resolution
for the purpose of industry or business people, it is true that ADR through
Arbitration is better suited for the industry provided certain issues are
addressed in the course.
Law of Arbitration and section
397/398 of Companies Act, 1956:
All are aware at the
complications in getting the corporate disputes resolved and the complications
in a proceeding under section 397/398 of the Companies Act, 1956. It is also
very frequently seen now in a proceeding/petition under section 397/398 of the
Companies Act, 1956, an application under section 8 of Arbitration and
Conciliation Act, 1956 is being filed based on an Arbitration Clause asking for
reference of the dispute to the Arbitration. I am not referring the judgment of
the constitutional courts, but, I strongly feel that the application of law of
Arbitration in a proceeding under section 397/398 of the Companies Act, 1956
will remain complicated. Already there is a perception among corportes that the
remedy provided to the shareholders when they are oppressed or the company is
mismanaged, is not effective. The issue of application of law of arbitration to
a proceeding under section 397/398 of the Companies Act, 1956 further
complicates the entire thing. First of all, I would like to say as to why law
of Arbitration can not be imposed mechanically in a proceeding under section
397/398 of the Companies Act, 1956 and it is as follows:
1. Adjudication of a corporate
dispute under section 397/398 of the Companies Act, 1956 requires expertise and
that is also a reason for constituting “Company Law Board” or the “Tribunal”
especially under the provisions of Companies Act, 1956.
2. A proceeding under section
397/398 of the Companies Act, 1956 can not be seen as a proceeding between or
among the shareholders only and it is the responsibility of the Company Law
Board to look into the functioning of the company, other shareholders, other
stake holders, rights of other third parties who are not involved in the
proceeding too apart from public interest. In view of the scope of a proceeding
under section 397/398 of the Companies Act, 1956, an Arbitrator or an Arbitral
Tribunal can not effectively deal with a case of oppression and mismanagement.
3. A proceeding under section
397/398 of the Companies Act, 1956 will normally be based on a series of acts
on the part of the majority in the Company and as such no Arbitration clause
can effectively cover the scope of allegations in a petition under section
397/398 of the Companies Act, 1956.
4. The object of the Company Law
Board under section 397/398 of the Companies Act, 1956 is to ‘put an end to the
mattes complained of’ and in order to ‘regulate the affairs of the Company’. In
view of the scope of section 397/398 and the object, Company Law Board may
simultaneously look into a particular issue though that particular issue is a
subject matter of a Civil Suit or some other proceeding. The object of section
397/398 of the Companies Act, 1956 is different from the scope of a Civil Suit
or some other proceeding.
Thus, it is likely that the
object of section 397/398 and other provisions of the Companies Act, 1956 may
get defeated if law of Arbitration is made applicable automatically or
mechanically. Without referring to any judgments on the issue, I strongly feel
that the jurisdiction of the Company Law Board/Court/Tribunal under section
397/398 of the Companies Act, 1956 can not be taken-away unless the Company Law
Board/Court/Tribunals feels that there is nothing wrong in referring the
dispute to the Arbitration or the Tribunal based on the averments in the
Petition and other considerations. It is also true that, at times,
share-holders will do forum-shopping and may feel comfortable approaching the
Company Law Board though a particular dispute can be decided by a Civil Court.
This is where the Company Law Board can seriously look into the issue of
Arbitration or referring the dispute to Arbitration and infact, logically, the
Company Law Board need not entertain an application under section 397/398 of
the Companies Act, 1956 at all as nothing prevents the parties to initiate the
Arbitral proceedings simultaneously or the option of initiating the Arbitration
proceedings is always open to any party despite a petition under section
397/398 of the Companies Act, 1956 being dismissed. From any angle, I don’t
think that the jurisdiction of the Company Law Board under section 397/398 of
the Companies Act, 1956 can be taken-way showing an Arbitration clause and if
such a proposition is accepted, then, the object of section 397/398 of the
Companies Act, 1956 will get defeated. Its another complicated issue and to be
handled carefully despite the encouragement to the ADR through Arbitration.
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
