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
In order to reduce the delay in
courts in the process of traditional adjudication mechanism, the Alternative
Disposal Mechanism (ADR) was mooted. The dispute resolution through
Conciliation, Arbitration and Mediation etc., is regarded as alternative
mechanism to resolve the disputes between or among the parties in a defined
legal relationship. The dispute resolution through Arbitration has occupied
great significance in India in the recent past though it was successfully
practiced in the developed nations like United States etc. The Arbitration and
Conciliation Act, 1996 replacing the earlier act of 1940, governs the issue of
dispute resolution through Arbitration. Any dispute arising out of a defined
legal relationship can be resolved through Arbitration. In Arbitration
Mechanism, the parties themselves will choose the Arbitrator; agree to the
procedure for appointment of Arbitrator, the procedure to be followed by
Arbitration, the place of Arbitration proceedings etc. It is all meant to
provide the parties to resolve their dispute effectively and speedily without
burdening the traditional courts.
Now-a-day, in all transactions
and the pursuant documents, the Arbitration clause is incorporated
mechanically. Admittedly, the Arbitration mechanism is useful for resolving the
disputes and it is costly. In commercial transactions, where there is a genuine
dispute and where the stakes are very high, the Arbitration mechanism is
useful. But, the common man may not benefit much from the Arbitration mechanism
as it is costly.
Section 7 of Arbitration and Conciliation
Act, 1996 deal with the “Arbitration Agreement” and the same is extracted
below:
“7.Arbitration Agreement. – (1)
In this Part, “arbitration agreement” means an agreement by the parties to
submit to arbitration all or certain disputes which have arisen or which may
arise between them in respect of a defined legal relationship, whether
contractual or not.
(2) An arbitration agreement may
be in the form of an arbitration clause in a contract or in the form of a
separate agreement.
(3) An Arbitration agreement
shall be in writing.
(4) An arbitration agreement is
in writing if it is contained in –
(a) a document signed by the
parties;
(b) an exchange of letters,
telex, telegrams, or other means of telecommunications which provide a record
of the agreement; or
(c) an exchange of statements of
a claim and defence in which the existence of the agreement is alleged by one
party and not denied by the other.
(5) The reference in a contract
to a document containing an arbitration clause constitutes an arbitration
agreement if the contract is in writing and the reference is such as to make
that arbitration clause part of the contract.”
Whether an Arbitration clause
ousts the jurisdiction of Company Law Board/Tribunal and the Company Court?
When there was a dispute between
the company and other, between the company and its shareholder and between two
companies, then, the issue will be complicated and stakes will be high very
often. The parties in a company dispute may require immediate orders having the
binding nature. Generally speaking, there is no bar on referring a company
dispute to an Arbitrator, but, the question is as to whether the Arbitration
clause will oust the jurisdiction of Company Law Board/National Company Law
Tribunal or the Company Court. This issue is to be carefully considered as
otherwise, the dispute resolution process may get unnecessarily delayed on the
basic question of legal sanctity of an Arbitration Clause in Company documents.
This is very very significant issue. Company Law is very very complicated by
its very nature and the question as to whether an Arbitration Clause will oust
the jurisdiction of Company Law Board or the Company Court, is really
interesting to consider.
Normally, unless there is a
specific bar on the party concerned in providing an arbitration clause, the
parties concerned may have an arbitration clause with regard to the contractual
relation between or among them or otherwise. But, the arbitration clause may
not come in the way of Company Law Board/Tribunal or Company Court in passing
various orders exercising powers under the Companies Act, 1956. Because, the
process of winding-up a company cannot be handled effectively by an Arbitrator.
Again, even by agreement, the procedure prescribed for sanctioning a scheme of
amalgamation or compromise can not be ignored and it can only be done by the
Company Court as provided under the Act. Thus, the question very often comes is
as to whether the Arbitration clause in a document or a company document will
oust the jurisdiction of Company Law Board or the Company Court. Referring the
issue of providing a arbitration clause between the company and members
whatsoever and connecting the same to the right of the member/s to file an
application under section 397/398 of the Act, the High Court of Delhi, in In
the matter of Surendara Kumar Dhawan and another Vs. R.Vir and others, (1977)
47 Com Cases 277, was pleased to observe that “the shareholders of a company
have a right to file a petition under section 397 or section 398 of the
Companies Act, 1956, for relief against mismanagement or oppression, if the
provisions of section 399 are satisfied. Their right is a statutory right which,
by section 9, can not be ousted by a provision in the articles of association
of the company. Any article providing that a difference between the company and
its directors or between the directors themselves or between any members of the
company or between the company and any person shall be referred to arbitration
can not debar the jurisdiction of the court in the matter of a petition under
section 397 or 398. The court will not stay a petition under section 397 and
398 on an application under section 397 or 398 on an application under section
34 of the Arbitration Act, 1940, based on the arbitration clause”. On the same
lines, the High Court of Delhi, in O.P.Gupta Vs. Shiv General Fianance (P.)
Ltd. and others, (1977) 47 Com Cases 279, was pleased to observe that “merely
because there is an article in the articles of association of the company to
the effect that any dispute between the company on the one hand and its members
on the other will be referred to arbitration, the court will not stay a petition
under section 397 and 398 of the Companies Act, 1956, for relief against
mismanagement or oppression in the affairs of a company. Such an article can
not be called into play for the purpose of staying proceedings under section
397 or section 398. The provisions of sections 397 and 398 and of section 434
give exclusive jurisdiction to the court and the matters dealt with thereby can
not be referred to arbitration. No arbitrator can possibly give relief to the
petitioner under sections 397 and 398 or pass any order under section 402 or
section 403”. Again, on the same lines, it was reiterated by the Bombay High
Court, in Manavendra Ckhitnis and another Vs. Leela Chitnis Studios P.Ltd. and
others, (1985) 58 Com Cases 113, wherein the court was pleased to observe that
“merely because there is an arbitration clause or an arbitration proceeding, or
for that matter an award, the court’s jurisdiction under ss.397 and 398 of the
Companies Act, 1956, can not stand fettered. On the other hand, the matter
which can form the subject-matter of a petition under ss.397 and 398 cannot be
the subject-matter of arbitration, for an arbitrator can have no powers such as
are conferred on the court by sections such as s.402.”
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
