"You are the creator of your own destiny - Swami Vivekananda"
NOTE: No part of the information provided in this blog is permitted to reproduce, publish, use in any manner whatsoever without the express permission from the author.

3/24/10

Arbitration Agreement between or among Companies - Jurisdiction of Company Law Board - a case study

I have earlier written articles on the application of law of Arbitration to the Company disputes and especially the impact of the Arbitration Agreement on the jurisdiction of the Company Law Board and the Company Court. It is an interesting and also a complicated issue to deal-with. 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

  1. Machino Plastics Ltd and Ors
  2. Machno Finance Pvt.Ltd.

Vs.

RESPONDENTS

  1. Caparo Maruti Ltd.
  2. Caparo India Ltd
3. Mr. Anil Kumar Asthana
  1. Mr. Angad Paul
5. Mr. Amber Paul
  1. 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.


No comments:

Post a Comment

Post a Comment