Gujarat High Court
Sadbhav Infrastructure Project ... vs Company Law Board & on 14 August, 2014
Author: C.L. Soni
Bench: C.L. Soni
C/SCA/2179/2014 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 2179 of 2014
For Approval and Signature:
HONOURABLE MR.JUSTICE C.L. SONI Sd/-
=========================================
1 Whether Reporters of Local Papers may be allowed to see the No
judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of the No
judgment ?
4 Whether this case involves a substantial question of law as to No
the interpretation of the constitution of India, 1950 or any order
made thereunder ?
5 Whether it is to be circulated to the civil judge ? No
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SADBHAV INFRASTRUCTURE PROJECT LIMITED & 1
Versus
COMPANY LAW BOARD & 10
=============================================
Appearance:
MR KAMAL B TRIVEDI, SR. ADVOCATE for M/S. WADIAGANDY & CO.,
ADVOCATE for the Petitioners
MR SN SHELAT, SR. ADVOCATE WITH MR PREMAL R JOSHI for Respondent
No.6
MR MANISH BHATT, SR. ADVOCATE With MRS MAUNA M BHATT for
Respondent No.5
MR MIHIR THAKORE, SR. ADVOCATE With M/s. Singhi & Company, Advocates
for Respondent No.2
MR MIHIR JOSHI, SR. ADVOCATE With M/s. Sindhi & Company, Advocates for
Respondent Nos.3 and 4
=============================================
CORAM: HONOURABLE MR.JUSTICE C.L. SONI
Date : 14/08/2014
CAV JUDGMENT
1. This petition, filed under Article 226/227 of the Constitution of India, raises a prime issue, amongst several other issues, as to whether, in respect of the matter involved in the Company Petition filed under Sections 397, 398 read with Section 399, 402 and 403 of the Companies Act, 1956 (the Act) before the Company Law Board Page 1 of 88 C/SCA/2179/2014 CAV JUDGMENT (the CLB), the parties to the company petition can be referred to arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 (the Arbitration Act).
2. The respondent Nos.2 to 4 have filed Company Petition No.78 of 2013 before the CLB for the following reliefs prayed in para 8 thereof:-
(i) That this Hon'ble Board may be pleased to hold and declare that the Memorandum of Understanding dated 9.7.2010 is neither binding on the Company nor on the petitioners;
(ii) That this Hon'ble Board may be pleased to direct the respondent no.2 (SEL) along with the respondent nos. 3 to 8 to refund the amount of Rs.200 crores, siphoned away under the EPC contract dated 10.3.2010, to the Company, along with interst on the aforesaid amount at such rate as this Hon'ble Board may deem fit and expedient;
(iii) That this Hon'ble Board may be pleased to direct the respondent no.2 (SEL) along with the respondent nos.3 to 8 to refund the amount of Rs.91.50 crores, siphoned away as bonus under the EPC contract dated 10.3.2010, to the Company, along with interest on the aforesaid amount at such rate as this Hon'ble Board may deem fit and expedient;
(iv) That this Hon'ble Board may be pleased to quash and set aside the Service Agreement dated 1.3.2010, executed between the Company and the respondent no.3 (SIPL);
(v)That this Hon'ble Board may be pleased to direct the respondent no.3 (SIPL) along with the respondent nos.2 and 4 to 8 to refund the amount of approximately Rs.17 crores, siphoned away under the Service Agreement dated 1.3.2010, to the Company, along with interest on the aforesaid amount at such rate as this Hon'ble Board may deem fit and expedient;
(vi) That this Hon'ble Board may be pleased to quash and set aside the Services Agreement dated 22.9.2010, claimed to have been executed between the respondent no.3 (SEL) and the Company;
(vii) That this Hon'ble Board may be pleased to direct the respondent no.2 (SEL) along with the respondent nos.3 to 8 to give the accounts in respect of the amount received from the Company under the Services Agreement dated 22.9.2010 and be further pleased to direct the respondent no.2 (SEL) to refund the said amount to the Company, along Page 2 of 88 C/SCA/2179/2014 CAV JUDGMENT with interest at such rate as this Hon'ble Board may deem fit and expedient;
(viii) That this Hon'ble Board may be pleased to quash and set aside the Management Services Agreement dated 21.5.2012, executed between the Company and the respondent no.3 (SIPL);
(ix) That this Hon'ble Board may be pleased to direct the respondent no.3 (SIPL) along with the respondent nos.2 and 4 to 8 to refund the amount of approximately Rs.1.85 crores siphoned away under the Management Services Agreement dated 21.5.2012 along with interest on the aforesaid amount at such rate as this Hon'ble Board may deem fit and expedient;
(x)That this Hon'ble Board, after calling upon the respondent no.3 (SIPL) along with the respondent nos.2 and 4 to 8 to produce the Operation & Maintenance contract, which is claimed to have been approved in the meeting of the board of directors of the Company held on 4.3.2010, be pleased to quash and set aside the board resolution approving the execution of the Operation & Maintenance Contract, vide board resolution dated 4.3.2010 and be further pleased to quash and set aside the said Operation & Maintenance contract executed/ to be executed between the Company and the respondent no.3 (SIPL);
(xi) That this Hon'ble Board may be pleased to declare and hold that the EPC contract dated 30.4.2010 executed between SEL, KNR Construction Limited and the Company is not binding on the Company;
(xii) That this Hon'ble Board may be pleased to declare and hold that the Annual Report of the Company as on 31.3.2012 passed in the board meeting of the company held on 19.5.2012 and in AGM held on 20.8.2012 is neither binding on the Company nor on the petitioners;
(xiii) That this Hon'ble Board may be pleased to quash and set aside the resolutions passed in the board meeting of the Company held on 29.12.2012;
(xiv) That this Hon'ble Board may be pleased to quash and set aside the resolutions passed in the board meeting of the Company held on 30.3.2013;
(xv) That this Hon'ble Board may be pleased to quash and set aside the resolutions passed in the board meeting of the Company held on 22.5.2013;
(xvi) That this Hon'ble Board may be pleased to quash and set aside the resolutions passed by circular resolution pursuant to the letter dated 25.5.2013 addressed by the Company;
Page 3 of 88 C/SCA/2179/2014 CAV JUDGMENT(xvii) That this Hon'ble Board may be pleased to direct the Company to return the amount of Rs.16,91,88,000/- deposited by ML, under protest, vide its letter dated 7.6.2013;
(xviii) That this Hon'ble Board may be pleased to quash and set aside the resolutions passed by the shareholders of the Company in their Extra-Ordinary General Meeting held on 27.6.2013;
(xix) That this Hon'ble Board may be pleased to direct the respondent no.3 (SIPL) along with the respondent nos.2 and 4 to 8, to disclose the details of the payment made by the Company to SIPL towards the interest amount in respect of the temporary loans claimed to have been availed by the Company for payment of bonus under the EPC contract dated 10.3.2010 and be further pleased to direct SIPL along with the interest nos.2 and 4 to 8, after taking such accounts, to refund the amount of interest paid by the Company to SIPL along with such rate of interest as this Hon'ble Board may deem fit and expedient;
(xx) That this Hon'ble Board may be pleased to declare the appointment of respondent no.8 as the director of the Company as illegal and invalid;
(xxi) That this Hon'ble Board may be pleased to appoint as independent firm of Chartered Accounts as a Statutory Auditor of the Company in the place of M/s. Manubhai & Co., Chartered Accountants;
(xxii) That this Hon'ble Board may be pleased to restrain the Company from availing the services of M/s. Wadia Gandhy & Co., Advocates in respect of the issues raised by the petitioners in the present petition; and (xxiii) That this Hon'ble Board may be pleased to award the cost of the present petition to the petitioners and be pleased to pass such other and further reliefs as this Hon'ble Board may deem fit and necessary in the facts of the present case and in the interest of justice."
3. Following are some relevant facts:-
3.1. On 8.2.2010, the National Highway Authority of India (NHAI) awarded contract to the consortium of respondent No.6, i.e. Sadbhav Engineering Limited (SEL), the petitioner No.1, i.e. Sadbhav Infrastructure Project Ltd. (SIPL) (SEL and SIPL known as 'Sadbhav Group' to be referred as majority group) and respondent No.2, i.e. Page 4 of 88 C/SCA/2179/2014 CAV JUDGMENT Montecarlo Limited, (MCL) for four laning of 100 Km. National Highway (N.H.) No.13 between Bijapur and Hungund in the State of Karnataka.
3.2. On 22.2.2010, a joint Venture company - respondent No.5, called as Bijapur and Hungund Tollway Private Ltd. (BHTPL) (to be referred as 'the Company') came to be formed to execute the above-
said contract. Sadbhav Group holds 77% and the MCL holds 23% of equity share capital in the company.
3.3. On 1.3.2010, the service agreement was executed between SIPL and the company for rendering the project development and financial advisory services to ensure that the project achieves speedy financial closure and disbursement from the lenders.
3.4. On 9.3.2010, concession agreement was executed between NHAI and the company for execution of the project, whereunder, exclusive rights, license and authority to construct, operate and maintain the project for a period of 20 years are given on the terms and conditions set out in the agreement.
3.5. On 10.3.2010, EPC contract, i.e. Engineering and Procurement Construction contract, was executed between the company and the SEL, whereunder the company agreed to pay Rs.1025 crore as contract price to the SEL. In this agreement, there is also a clause enabling the SEL to subcontract whole or any part of the work without prior approval of the company while remaining fully responsible for the performance of all the works in accordance with this agreement.
3.6. Then on 30.4.2010, another EPC contract was executed between the company, SEL and KNR Construction Limited, whereunder the SEL appointed the KNR Construction Limited (referred as EPC Contractor in the agreement) to carry out the works in respect of the project highway. The contract price agreed to be paid by SEL to EPC Contractor was fixed at Rs.825 Crores. There is Page 5 of 88 C/SCA/2179/2014 CAV JUDGMENT also a provision made for payment of bonus on early completion of the project. It appears that some differences and dispute started taking place between the respondent No.3- Managing Director/ Chairman of the MCL and respondent No.7- Chairman and Managing Director of SEL (Director of the company till 4.6.2012), who are brothers, as regards conducting Board meetings, decisions taken in the Board meetings, execution of transaction and financial documents in the name of company and execution of EPC contract dated 30.4.2010 without knowledge of the respondent No.3. Such disputes led to exchange of letters/ various communications between the MCL and majority Sadbhav Group. As stated in the company petition, the respondent No.7 assured the respondent No.3 that the company would not be put to any loss through EPC contract and that the SEL shall negate the impact created pursuant to the EPC contract. It was then decided to execute Share Holder Agreement (SHA) in respect of managing the affairs of the company by joint venture partners. In consideration of the promises and assurances given by the respondent No.7, it was also agreed to execute Memorandum of Understanding (MoU). Accordingly, on 9.7.2010, MoU was executed amongst SIPL, SEL, MCL and the company. On the same day, SHA was also executed amongst the same parties. Clause 36 in SHA is for arbitration which reads as under:-
"36. ARBITRATION 36.1 In the event of any dispute arising among the Promoters hereto in connection with this Agreement, the Promoters hereby agree that:
36.1.1. The Promoters shall deliver a notice to commence consultation and negotiation to resolve the dispute. If the Promoters do not reach a solution within a period of 30 (thirty) days following the dte of such notice of their consultations and negotiations, any Party that is involved in the dispute may treat the same as an arbitrable dispute by giving notice to the company and the other Parties, in which case the dispute shall be submitted to a final and binding arbitration in accordance with the provisions contained hereinafter.
36.1.2. If the dispute subsists between any two or more of the Page 6 of 88 C/SCA/2179/2014 CAV JUDGMENT Promoters hereto pursuant to Clause 36.1) above, the dispute shall be referred to a sole arbitrator appointed by the common consensus of the Promoters, failing which both of the Shareholders group shall have right to appoint one arbitrator each of their own choice. The two Arbitrators so appointed shall appoint an Umpire, whose decision shall be binding on both the Arbitrator and the Shareholders Group. The seat of arbitration shall be at Ahmedabad, India, and the arbitration shall be conducted in accordance with the Indian Arbitration and Conciliation Act, 1996.
36.2. All arbitration proceedings conducted pursuant to this Clause 36 shall be conducted in the English Language."
3.7. The MoU does not contain any arbitration clause. However, the MoU contains the following terms:
"1. Parties agree and withdraw all the Correspondence entered into by them including but not restricted to details mentioned in Schedule- 'A' and accordingly all the allegations, claims or denial to such allegations and claims shall stand withdrawn by the respective Parties. (hereinafter collectively referred to as 'Correspondence')
2. None of the Parties would accordingly rely upon, claim or any right or re-raise the issues raised in the Correspondence.
3. The Correspondence will not be relied upon and be an evidence in any matter before any judicial or non judicial authority.
4. Minutes recorded by the Company for the meeting held upto 25th May have been verified by Parties and found to be correctly recorded and agreed upon in all respect.
5. Parties have on this date entered into shareholders agreement and agreed upon the terms and conditions of the various Transaction Documents (as defined in the Shareholders Agreement), entered into or to be entered in by Company.
6. Parties agreed to approach jointly to lenders of the project for replacing "Joint and Several Liability" clause with "Proportionate liability" immediately after achieving Commercial Operation Date for 100% of the project length and start of toll collection.
7. Company is accordingly authorized by the nominees of SEL/ SIPL and MCL for entering into such document to the extent yet to be executed and ratify and conform the documents already entered into."Page 7 of 88 C/SCA/2179/2014 CAV JUDGMENT
3.8. It appears that even after the MoU was executed, the disputes and differences between the minority and majority group continued. The company petition is filed with allegations of conducting the affairs of the company by majority Directors in a manner oppressive to minority and prejudicial to interest of the company and public interest, like non-service of agenda notices for the Board's meetings, failure of majority Directors to involve minority director into the day- to-day affairs of the company, siphoning of company's fund, etc. 3.9. The respondent Nos.7 to 11 herein are the respondent Nos.4 to 8 in Company Petition and are majority group directors, out of whom respondent Nos.5 to 8 are nominee directors.
4. In the Company petition, the petitioner No.1 herein (respondent No.3 in company petition) filed Company Application No.178 of 2013 under Section 8 of the Arbitration Act seeking reference to arbitration. The CLB rejected such application mainly on the grounds that the matter in the company petition is not subject to the arbitration agreement, that the reliefs claimed in the company petition do not fall within the domain of Arbitral Tribunal and that there is no commonality of the parties between the company petition and the arbitration agreement. This order of CLB is under challenge before this Court in this petition. The petitioner No.1 and the other respondents also filed different company applications being Nos.183 to 189 of 2013 to dismiss the company petition inter alia on the ground of mis-joinder of the parties. With Company Application No.178 of 2013, the other applications were dismissed by common order, however, the order dismissing the other applications is not under challenge.
5. The CLB has observed that for referring the parties to arbitration under Section 8 of the Arbitration Act, following five tests are required to be met:-
Page 8 of 88 C/SCA/2179/2014 CAV JUDGMENT(i) Existence of a valid and subsisting agreement between the parties;
(ii) Parties to the arbitration agreement and parties to the petition are common;
(iii) Subject matter of action is same as the subject matter of arbitration agreement;
(iv) Other party applies the Court for reference to arbitration before filing the written statement;
(v) The relief sought for in the petition can be adjudicated and granted by the arbitrator/ arbitral Tribunal.
6. The CLB has held that first test is satisfied, second test is not met as the parties to the company petition and the parties to the arbitration agreement are not common, third test is not met as the matter brought before the CLB is not subject matter of arbitration agreement and fourth test is met. As regards last test, it is held that the Arbitral Tribunal is not capable to grant reliefs prayed in the company petition.
7. I have heard learned advocates for the parties.
8. Learned senior advocate Mr. Kamal B. Trivedi appearing with M/s. Wadia Gandhi and Company, Advocates for the petitioners, submitted that the respondent Nos.2 to 4 having stated in the company petition that they do not want winding up of the company, it clearly appears that the company petition is nothing but to settle the score of private dispute between two brothers and is filed just for monetary benefits which could always be considered in arbitration. Mr. Trivedi submitted that the respondent Nos.4 to 8 in the company petition are the directors representing the joint venture partners on the Board of company and though they are not necessary parties in the company petition but are joined as respondents just to keep away the remedial measures through the arbitration. Mr. Trivedi submitted Page 9 of 88 C/SCA/2179/2014 CAV JUDGMENT that even in their absence, the CLB can grant the reliefs prayed in the company petition and therefore, even if they are not the parties to arbitration agreement, the CLB can make reference to the arbitration. Mr. Trivedi submitted that the CLB having held that first test about existence of valid arbitration agreement between the parties is satisfied, ought not to have refused reference to arbitration on the ground that there is no commonality of parties to the arbitration agreement. Mr. Trivedi submitted that the respondent Nos.4 to 8 in the company petition since representing the majority group are connected with all agreements and since SHA contains arbitration clause to refer disputes in connection with all the agreements to arbitration, all parties to the company petition could be referred to arbitration under Section 8 of the Arbitration Act as the matter before the CLB is the subject of arbitration agreement. Referring to various clauses in the SHA, Mr. Trivedi submitted that any dispute in connection with any agreement between the parties is intended to be referred to arbitration and the matter involved in the company petition since could be said to be in connection with the agreements covered in SHA, the CLB could have referred the parties to arbitration. Mr. Trivedi submitted that the MoU and SHA are contemporaneous agreements and cannot be read in isolation and since the grievances made in the company petition are alleged breach of the agreements, there is no bar in referring the parties of the company petition to arbitration.
9. Mr. Trivedi submitted that the reliefs prayed in the company petition are on hollow allegations of oppressive and conduct of majority and mismanagement of company and it is nothing but artful drafting of the company petition which cannot take away the jurisdiction of the arbitrator. Mr. Trivedi submitted that in respect of the matter brought before the CLB in company petition under Sections 397, 398, 399 and 402 of the Act, the jurisdiction of the Civil Court is not barred and in respect of such matter, the arbitrator is Page 10 of 88 C/SCA/2179/2014 CAV JUDGMENT competent to decide the dispute when there is valid arbitration agreement between the parties to resolve the dispute by arbitration. Mr. Trivedi submitted that even otherwise, bar against Civil Court's jurisdiction is not to be inferred for any matter of a civil dispute unless it is expressly and impliedly barred. Mr. Trivedi submitted that reading the company petition as a whole, it clearly appears that the respondent No.3, the Managing Director of MCL has differences and disputes with respondent No.7 (Chairman / Managing Director of SEL) and company petition is filed complaining breach of assurances/ promises given by his brother. Mr. Trivedi submitted that by the MoU, the disputes between the brothers were set at rest and parties consciously made provisions in the SHA, which is incorporated in the MoU, for resolving any dispute in connection with the agreements between the parties only through the arbitration. Mr. Trivedi submitted that since full mechanism is provided to remedy the breach of obligation and the agreement in Clause No. 15 and No.19 of SHA, the disputes between the parties could be resolved by arbitration. Mr. Trivedi submitted that in view of the legislative mandate in Section 8 of the Arbitration Act to refer the parties to arbitration once it is found that there exists a valid arbitration agreement between the parties, the CLB could not have refused to refer the parties to arbitration on the ground that there is no commonality of parties and that arbitrator is not capable to grant reliefs as prayed in the company petition. Mr. Trivedi thus urged to allow the petition.
10. Mr. Trivedi has relied on following judgments in support of his arguments:-
[1] In the case of Gurnir Singh Gill and Another Vs. Saz International P. Ltd. and others reported in 1987(62) Company Cases 197;
[2] In the case of Marikar (Motors) and Another Vs. M.I. Ravikumar and others reported in 1982)52 Company Page 11 of 88 C/SCA/2179/2014 CAV JUDGMENT Cases 362;
[3] In the case of Pradip Kumar Sarkar and others Vs. Luxmi Tea Co. Ltd. and others reported in (1990)67 Company Cases 491;
[4] Rajasthan State Road Transport Corporation and Another Vs. Bal Mukund Bairwa (2) reported in (2009)4 SCC 299;
[5] In the case of Hindustan Petroleum Corpon. Ltd. Vs. Pinkcity Midway Petroleums reported in (2003)6 SCC 503;
[6] In the case of Branch Manager, Magma Leasing and Finance Limited and Another Vs. Potluri Madhavlata and Another reported in (2009)10 SCC 103;
[7] In the case of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and others reported in (2011)5 SCC 532;
[8] In the case of Rashtriya Ispat Nigam Ltd. and Another Vs. Verma Transport Co., reported in (2006)7 SCC 275;
[9] In the case of Agri Gold Exims Ltd. Vs. Sri Lakshmi Knits & Wovens and others reported in (2007)3 SCC 686;
[10] In the case of Raja Ram Kumar Bhagrava (Dead) By LRs.
Vs. Union of India reported in (1988)1 SCC 681;
[11] In the case of CDS Financial Services (Mauritius) Vs. BPL Communications Ltd. and others reported in 2004(121) Company Cases 374;
[12] In the case of Incable Net (Andhra) Limited and others Vs. Apaksh Broadband Limited and others reported in reported in (2010)6 SCC 719;
[13] In the Chloro Controls India (P) Ltd. Vs. Severn Trent Water Purification Inc. reported in (2013)1 SCC 641;
[14] In the case of Everest Holdings Limited Vs. Shyam Kumar Shrivastava and others reported in (2008)16 SCC 774;
[15] In the case of Virender Yadav Vs. Aerosvit Airlines and Others reported in 2008(3) ALR 445 (Delhi);
[16] In the case of Swiss Timing Limited Vs. Organising Committee, Commonwealth Games 2010, Delhi reported in 2014(2) ALR 460 (SC);Page 12 of 88 C/SCA/2179/2014 CAV JUDGMENT
[17] In the case of Airtouch International (Mauritius) Ltd. Vs. RPG Cellular Investments and Holdings P. Ltd. reported in 2004 ALR 647;
[18] In the case of Bialetti Industries S.P.A. Vs. Rachit Suresh Gangar and others reported in (2012)172 Company Cases 315 (CLB);
[19] Judgment of the High Court of Delhi in the case of Delhi Express Travels Pvt. Ltd. Vs. International Air Transport Association and Others dated 28.05.2009 in I.A. No.13094/ 2007 in C.S. (OS) 1044/2007;
[20] In the case of Sundaram Brake Linings Ltd., Kotak Mahindra Bank Ltd., M.S. Subhramanian and G. Manikandan reported in (2010)4 Comp L.J. 345 (Madras);
[21] In the case of M/s. Srivenkateswara Constructuions and others Vs. The Union of India reported in 1974 Andhra Pradesh 278;
11. Learned senior advocate Mr. Manish Bhatt with learned advocate Mrs. Mauna Bhatt for the Company submitted that though the company is not having a particular stand in the matter, however, it is not correct to say that the company is not a party to the arbitration agreement. Mr. Bhatt submitted that the respondent Nos.4 to 8 to the company petition are formal parties and since representing majority group, it can be said that there is a commonality of parties to the arbitration agreement. Mr. Bhatt submitted that all the prayers in the company petition, if individually taken, are agreed to be dealt with as per the terms of SHA and therefore, it could be said that the matter in company petition before the CLB is the subject of arbitration agreement. While replying on judgment of Delhi High Court in FAO (OS) 433-35 of 2011, Mr. Bhatt submitted that when dispute has arisen in joint venture group, it is covered by the arbitration clause and could be allowed to be resolved only through arbitration.
12. Learned senior advocate Mr. S.N. Shelat appearing with Mr. Premal Joshi for respondent No.6 submitted that all except Page 13 of 88 C/SCA/2179/2014 CAV JUDGMENT respondent Nos.4 to 8 to the company petition, are parties to arbitration agreement and the respondent Nos.4 to 8 since representing the majority group, could be said to be claiming through the respondent Nos.2 and 3 in the company petition. They can therefore, be said to be parties to the arbitration agreement in the context of Section 7 of the Arbitration Act. Mr. Shelat submitted that the pleadings of non-feasons can be part of determination by arbitrator provided, they fall under Sections 7 and 8 of the Arbitration Act. Referring to Clause 8 of SHA, Mr. Shelat submitted that the dispute in fact is in relation to the business of the company and thus referable to arbitration under the agreement. Mr. Shelat submitted that the law developed internationally is that even non-signatory parties to the arbitration agreement, if found intrinsically connected with main agreement, can be referred to arbitration and this Court can judicially determine by reading down the SHA that there is implied consent by non-parties for arbitration. Referring to Rusell on arbitration and the extract from Mulla, Mr. Shelat submitted that the question about reference to arbitration is to be decided by applying commercial wisdom. Mr. Shelat submitted that applying such commercial wisdom, when non-contractual claims if found intimately connected with contract, the arbitration clause even if designed primarily for contractual claims, can be extended to cover non- contractual claims. Mr. Shelat submitted that the arbitration cannot be defeated at the instance of one of the parties by contending that some parties to the judicial proceedings are not parties to the arbitration agreement. Mr. Shelat submitted that if the Court finds that non-parties to the arbitration agreement could be bound by the arbitration in view of their connectivity with the parties to the arbitration agreement, they could be referred to the arbitration. Mr. Shelat submitted that what is projected in company petition is draftsman's skill which cannot defeat the purpose behind the arbitration agreement. Mr. Shelat submitted that in fact, the impugned order has not considered the real causes for the dispute.
Page 14 of 88 C/SCA/2179/2014 CAV JUDGMENTThe dispute in the company petition is in connection with the agreements between the parties, however, to frustrate the agreement for arbitration, the respondent Nos.4 to 8 are joined in the company petition. Mr. Shelat submitted that Clause 15 of SHA provides complete mechanism for resolution of the dispute as regards breach of obligation and agreements between the parties and Clause 19 also provides for indemnifying parties suffering loss on account of the act of the other party.
13. Mr. Shelat submitted that the business of the company is a joint venture and cannot be dependent upon one agreement. Therefore, all the agreements between the parties are interconnected. Mr. Shelat submitted that though KNR Company is not the signatory to the arbitration agreement, however since connected to execution of project undertaken by the joint venture, the KNR could be referred to the arbitration. Mr. Shelat submitted that the dispute between the parties brought before the CLB is in persona and not in rem and therefore, CLB is not the fora in exclusion to arbitration. Relying on the judgment in the case of Fulham Football Ltd. (supra)Vs. Richards and Anr. reported in [2012]2 WLR 1008, Mr. Shelat submitted that it should be left to the arbitrator to first decide whether some lesser remedy could be thought of for the parties. Mr. Shelat submitted that in the Fulham case, it is considered that the arbitrator can determine the dispute between the members of the company about alleged breaches of the agreements which are essential of contractual dispute and arbitrator can consider a proper solution to such dispute and it would be only in the circumstances where the arbitrator concludes that winding up proceeding or proceeding in connection with unfair prejudice affecting the interest of the company could be taken, the parties could be made entitled to present petition before the CLB. Mr. Shelat thus submitted that filing of petition under Sections 397 and 398 of the Act is not always a stone block to refer the parties to arbitration. In fact, it would be always beneficial for the Page 15 of 88 C/SCA/2179/2014 CAV JUDGMENT parties to first allow the arbitrator to dwell into the dispute between the parties to find out solution to the dispute and during proceeding of arbitration, if it is found by the arbitrator that the matter could be dealt with only by statutory forum, the parties could be made entitled to have recourse to the statutory remedy.
14. Mr. Shelat relied on following decisions:-
[1] In the case of Tapan Kumar Paul Vs. Krishna Kanta Paul and others reported in AIR 1980 Calcutta 28;
[2] In the case of Fulham Football Ltd. Vs. Richards and Anr.
reported in [2012]2 WLR 1008;
[3] In the case of 20th Century Finance Corporation Ltd. Vs. Union of India and others reported in (2011)161 Company Cases 247;
[4] In the case of Olympus Superstructures Pvt. Ltd. Vs. Meena Vijay Khetan and others reported in AIR 1999 SC 2102;
15. Learned senior advocate Mr. Mihir Thakore appearing with M/s. Singhi & Company, Advocates for respondent No.2, submitted that Sections 397 and 398 of the Act confer exclusive jurisdiction upon CLB to decide the matter covered thereunder and in respect of the petition filed under such provisions, notice to the Central Government under Section 400 of the Act is required to be issued and even Central Government is authorized to ask for taking measures under Sections 397 and 398 of the Act. Mr. Thakore submitted that under Section 402 of the Act, the CLB has even power to alter the shareholdings of the members in the company, whereas the arbitrator shall be bound by the terms of agreement between the parties while deciding the dispute in arbitration. Mr. Thakore submitted that none of the powers available to CLB under Sections 398, 398 read with Section 402 of the Act can be exercised by the arbitrator. Mr. Thakore submitted that the powers under Sections 405 and 406 of the Act are available to the CLB in exclusion. Mr. Thakore submitted that the matter in the company petition is not only for the Page 16 of 88 C/SCA/2179/2014 CAV JUDGMENT complaint as regards oppression but it is also a derivative action for the benefit of the company. Mr. Thakore submitted that the matter in the company petition also covers the manner of majority in conducting the affairs of the company prejudicial to the public interest on the ground that the grant of Rs.273 crores given by the National Highway Authority has been siphoned away. Mr. Thakore submitted that it is also alleged that the majority directors, having fudiciary relationship with the company, have failed to perform their obligation towards the company. The relief against such directors would not be available if arbitration is invoked. Mr. Thakore submitted that if a director is appointed as nominee of one group, he cannot act for that group only as he has fiduciary duty towards the company and if he fails in such duty, he can be personally liable for the wrongs or damages done to the company which can only be remedied by the CLB. Mr. Thakore submitted that a legal action of majority could as well be oppressive and the arbitrator lacks jurisdiction to decide whether such action is oppressive. Mr. Thakore submitted that the CLB has statutory powers under Sections 397 and 398 of the Act to pass any order to end the matters complained of in and such powers are not available with the arbitrator.
16. Mr. Thakore submitted that the matter brought in the company petition can neither be said to be a dispute arising out of or in any way connected with the agreements between the parties for the purpose of arbitration. Mr. Thakore submitted that once the petition is filed complaining about oppression or mismanagement against the majority group, it is for CLB to find out whether the case is made out on the basis of evidence. If CLB finds that it is nothing but a breach or for enforcement of agreements between the parties, the CLB may not exercise the powers under the Act and may leave it to the parties to take appropriate remedies under the ordinary law, but the matter could not be referred to arbitration to first examine and find out whether the dispute is simply concerning breach or enforcement of Page 17 of 88 C/SCA/2179/2014 CAV JUDGMENT the agreements between the parties. Mr. Thakore submitted that if such a course is permitted to be adopted and if the arbitrator finds that the matter brought before him is to be dealt with by public fora, the same would create irreversible situation, as once the parties are referred to arbitration under Section 8 of the Arbitration Act, no proceedings would remain before the Court or statutory authority. Dealing with the case of Fulham (supra), Mr. Thakore submitted that Singapore Court in recent decision in the case of Silica Investors Limited Vs. Tomolungen Holdings Limited and Others reported in (2014) SGHC 101 has not approved the course suggested in Fulham. Mr. Thakore submitted that irrespective of the view taken by the Singapore Court, considering statutory provisions of Sections 397, 398 read with Section 402 of the Act, it is not permissible to first refer the matter to the arbitration to examine whether the dispute is fit to be resolved by the arbitrator. Mr. Thakore submitted that the remedy available under Sections 397 and 398 of the Act was never and can never be termed as ordinary or common law remedy. Mr. Thakore submitted that as per the allegation made in the company petition, not only more than Rs.200 crores of the company are siphoned away by EPC contract, service contract etc but it is also alleged that without involving nominated Director of minority in day-to-day affairs of the company and without serving agenda notice of the Board meetings, major decisions as regards business of the company were taken by majority directors which resulted into loss of crore of rupees to the company and also prejudicial to the public interest. Mr. Thakore submitted that the remedy available to a member of the company under Sections 397 and 398 of the Act is a statutory remedy under the special statute and such remedy cannot be frustrated by virtue of arbitration clause in the agreement. Mr. Thakore submitted that the reliefs prayed in the company petition can never be granted by the arbitrator as the arbitrator shall remain bound by the agreements between the parties to decide the dispute under and in connection with the agreements. Mr. Thakore submitted Page 18 of 88 C/SCA/2179/2014 CAV JUDGMENT that Clauses 15 and 19 of the SHA relied on by Mr. Trivedi and Mr. Shelat are only to facilitate the arbitrator to resolve the dispute in connection with the agreements. However, if the arbitrator is otherwise not competent to entertain the dispute, there is no question of resorting to Clauses 15 and 19 of the SHA. Mr. Thakore submitted that the CLB has held that majority directors in the company petition are necessary parties and such decision is not challenged and it has become final inter-parties. Therefore, such issue cannot be permitted to be re-agitated on the principle of Issue Estoppel. Mr. Thakore submitted that since majority directors are found to be necessary parties by the CLB, the arguments advanced by Mr. Trivedi and Mr. Shelat that they are purposefully joined in the company petition to frustrate the arbitration clause are not available to them. Mr. Thakore submitted that if the submission as regards the issue Estoppel is not accepted by this Court, then also, majority directors are necessary parties not only on account of their fiduciary relationship with the company and but in the context of the nature of allegations in the company petition and the reliefs prayed therein. Mr. Thakore submitted that even by consent of such majority directors, they cannot be referred to the arbitration for the matter in dispute as for reference to arbitration, there has to be an agreement between the parties. By their consent, they do not become parties to the agreement. Mr. Thakore submitted that in whatever capacity, either as nominee director or otherwise, the directors are bound to discharge their duties towards the company. They cannot act on behalf of a particular group of shareholders. Therefore, since they are necessary parties to the company petition and not parties to the arbitration agreement, they cannot be referred to arbitration.
17. Mr. Thakore submitted that the company is not a party to the arbitration agreement. Mr. Thakore submitted that though large number of provisions of SHA were incorporated in the Article of Association, however, no provision for arbitration was made therein.
Page 19 of 88 C/SCA/2179/2014 CAV JUDGMENTMr. Thakore submitted that the company is not among the parties referred but is individually referred as a party and the reference to arbitration contemplated is only as regards the dispute between the promoters who are referred as parties. Therefore, the CLB has rightly held that the company is not a party to the arbitration agreement in SHA. Mr. Thakore submitted that since in the context of shareholding group, the company cannot be referred as part of any shareholding group and therefore also, it cannot be said that the company is a party to the arbitration agreement. Mr. Thakore submitted that if the company is not a party to the arbitration agreement and the reliefs prayed in the company petition are for the benefit of the company, the arbitrator is not competent to consider and grant such relief. Mr. Thakore submitted that the CLB after considering the matter involved in the company petition with reliefs prayed therein has found that there is no commonality of parties and of the subject matter with the arbitration agreement and such being the agreed view taken by the CLB, no interference is called for in the impugned order of CLB in exercise of the powers under Article 226/227 of the Constitution of India.
18. Mr. Thakore relied on following decisions:-
[1] In the case of Shanti Prasad Jain Vs. Kalinga Tubes Ltd. etc. reported in AIR 1965 SC 1535;
[2] In the case of Mohanlal Ganpatram and Another Vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and others, reported in AIR 1965 GUJARAT 96;
[3] In the case of Silica Investors Limited Vs. Tomolungen Holdings Limited and Others reported in (2014) SGHC 101;
[4] In the case of M.R. Engineers and Contractors Private Limited Vs. Som Datt Builders Limited reported in (2009)7 SCC 696;
19. Learned senior advocate Mr. Mihir Joshi appearing with M/s. Singhi & Company for respondent Nos.3 and 4 submitted that though Page 20 of 88 C/SCA/2179/2014 CAV JUDGMENT there existed no common law remedy for the kind of the matter in question, however even if existed, it cannot survive in view of statutory provision. Mr. Joshi submitted that for the matter brought under Sections 397 and 398 of the Act, only the CLB has exclusive jurisdiction and the arbitrator is not competent to decide such matter. The matter brought in the company petition before the CLB under a statutory right conferred on a member to be dealt with only by under Sections 397 and 398 of the Act, cannot be scuttled by arbitration agreement between the parties. Mr. Joshi submitted that for the nature of reliefs prayed, dissimilarities in parties, nature of agreement in SHA for reference to arbitration and nature of allegations made in the company petition would collectively dis- entitle the petitioners to have reference to the arbitration and dissuade the Court from referring the parties to the arbitration. Mr. Joshi submitted that the right to bring complaint as regards conduct of oppressiveness and mismanagement of the company is statutorily recognized under Section 399 of the Act and the powers to be exercised by the CLB under Sections 397 and 398 read with Section 402 of the Act are special and exclusive akin to the powers of winding up of the company. Mr. Joshi submitted that on examining the material, the CLB may not find a case for winding up but the matter would still remain large before the CLB to pass appropriate order under Sections 397 and 398 of the Act or take meausres under Section 402 of the Act as exigencies may demand. Mr. Joshi submitted that Sections 307 to 402 of the Act are complete Code to deal with the complain of the members of the company. The right to remedy under the said provisions is available to a member of the company against the Director which ordinarily not available to the shareholders to complain about his manner of conducting the affairs of the company. Therefore, the statutory remedy availed by the respondent Nos.2 to 4 before the CLB by the company petition cannot be converted into a remedy of arbitration especially when the matter involved in the company petition could be statutorily dealt with only Page 21 of 88 C/SCA/2179/2014 CAV JUDGMENT by the CLB.
20. Mr. Joshi submitted that whether the conduct of majority is oppressive to minority or prejudicial to the interest of the company or to the public interest can only be examined by the CLB and it is for the CLB to pass appropriate orders including rejection of the petition. But, the arbitrator cannot be first permitted to examine and decide whether the conduct of majority is of oppressive or of mismanaging the company and then to decide whether any lesser remedy can be granted. Such exercise would frustrate the legislative intention of conferring exclusive jurisdiction to the CLB in respect of matter under Sections 397 and 398 of the Act.
21. Learned senior advocate Mr. Joshi submitted that the arguments on common law remedy are general and not dealing with the aspect whether the reliefs prayed in the company petition for the benefit of the company could be available in common law or not. Mr. Joshi submitted that the common law remedy is not available to a member of the company on behalf of and for the benefit of the company. Mr. Joshi submitted that no remedy in common law ever existed for the matter covered under Sections 397 and 398 of the Act. Mr. Joshi submitted that even if such remedy was available in common law, the same was subsequently subsumed in statutory provision, therefore, the only recognized mode of availing such remedy is, as provided in the statute and cannot be allowed to be traced to common law. Mr. Joshi submitted that the course suggested in Fulham's case for first referring the matter to the arbitrator or making reference to the arbitration for part of the matter is rightly not found favoured with Singapore Court in the case of Silica Investors Limited (supra), as the line of action suggested in Fulham is very impracticable to be followed for many reasons discussed by the Singapore Court. Mr. Joshi submitted that since CLB has correctly followed the law on the issue of referring the parties to arbitration under Section 8 of the Arbitration Act, this Court may not interfere Page 22 of 88 C/SCA/2179/2014 CAV JUDGMENT with the order of the CLB.
22. Mr. Joshi relied on following decisions:
[1] In the case of Union of India and others Vs. Sicom Limited and Another reported in (2009)2 SCC 121;
[2] In the case of Cosmosteels Private Ltd. and others Vs. Jairam Das Gupta and others, reported in (1978)1 SCC 215;
[3] In the case of Rajasthan State Road Transport Corporation and Another Vs. Krishna Kant and others reported in (1995)5 SCC 75;
[4] In the case of Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd. reported in (1999)5 SCC 688;
[5] In the case of Management Committee of Montfort Senior Secondary School Vs. Vijay Kumar and others reported in (2005)7 SCC 472;
[6] In the case of Kamal Kumar Dutta and Another Vs. Ruby General Hospital Ltd. and Others reported in (2006)7 SCC 613;
[7] In the case of M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara Raja and Another reported in (2008)6 SCC 750;
[8] In the case of Ammonia Supplies Corporation (P) Ltd. Vs. Modern Plastic Containers Pvt. Ltd. and others reported in (1998)7 SCC 105;
23. From the above submissions and having regard to the provisions of Sections 397, 398 read with Section 402 of the Act, the following incidental issues also arise for consideration:-
(1) Is there a common law remedy in respect of the matter brought before the CLB under Sections 397 and 398 of the Act?
(2) Are the powers conferred on CLB in respect of proceedings initiated by the member of a company under Sections 397 and 398 of the Act special and exclusive and does the jurisdiction of Civil Court stands excluded to decide the matter brought before the CLB under Sections 397 and 398 of the Act ?Page 23 of 88 C/SCA/2179/2014 CAV JUDGMENT
(3) Is the arbitrator competent to decide the matter brought before the CLB under Sections 397 and 398 of the Act ?
(4) Is it permissible to first refer the parties of the company petition filed under Sections 397 and 398 of the Act to the arbitration to examine and decide as to whether the matter brought before the CLB could be resolved by the arbitrator in terms of agreement between them ?
(5) Is it permissible to refer the parties for part of the matter involved in the company petition filed under Sections 397 and 398 of the Act if it appears that the dispute is concerning the breach of the agreements between the parties or for claim of monetary relief ?
(6) Whether the directors joined as parties to company petition and sought to be held liable in a derivative action, could be bound by the result of the arbitration if not parties to arbitration agreement ?
24. A common law is one where no law on the subject is made by the legislative enactment. In England, it was a system of law followed by judges in cases before them and made known to be followed. Thus, it was a judge made law. In Indian Companies Act 1913, there was no provision to claim relief as regards oppression of minority. Therefore, it could be said that remedy in tort for oppressive conduct was available by way of common law remedy. However, same cannot be compared with statutory right available to a member to complain as regards oppressive and prejudicial conduct of the majority. Therefore, decision in case of Raja Ram Kumar (supra) will of of no help to the petitioners. Even otherwise if any common law remedy pre-existed, it must yield to statutory provision as held by Hon'ble Supreme Court in the case of Sicom Limited (supra).
25. It appears that on the basis of the recommendation of the Company Law Commission, amendment was brought in by the Indian Companies (Amendment) Act, 1951 (L II of 1951) in 1913 Act. Amongst other provisions, powers were conferred on the Courts by Section 7 thereof, based on the provisions of Section 210 of the English Companies Act, 1948. Section 210 of the English Act reads as Page 24 of 88 C/SCA/2179/2014 CAV JUDGMENT under:-
"210.Alternative remedy to winding up in cases of oppression (1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within subsection (3) of section one hundred and sixty-
nine of this Act, the Board of Trade, may make an application to the court by petition for an order under this section.
(2) If on any such petition the court is of opinion--
(a) that the company's affairs are being conducted as aforesaid;
and
(b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up;
the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.
(3) Where an order under this section makes any alteration in or addition to any company's memorandum or articles, then, notwithstanding anything in any other provision of this Act but subject to the provisions of the order, the company concerned shall not have power without the leave of the court to make any further alteration in or addition to the memorandum or articles inconsistent with the provisions of the order; but, subject to the foregoing provisions of this subsection, the alterations or additions made by the order shall be of the same effect as if duly made by resolution of the company and the provisions of this Act shall apply to the memorandum or articles as so altered or added to accordingly.
(4) An office copy of any order under this section altering or adding to, or giving leave to alter or add to, a company's memorandum or articles shall, within fourteen days after the making thereof, be delivered by the company to the registrar of companies for registration; and if a company makes default in complying with this subsection, the company and every officer of the company who is in default shall be liable to a default fine.
Page 25 of 88 C/SCA/2179/2014 CAV JUDGMENT(5) In relation to a petition under this section, section three hundred and sixty-five of this Act shall apply as it applies in relation to a winding-up petition.."
26. By the said amendment, Section 153-C was introduced in the Act of 1913, which reads as under:-
"153.C-(1) Without prejudice to any other action that may taken, whether in pursuance of this Act or any other law for the time being in force, any member of a company who complains that the affairs of the company are being conducted-
(a) in a manner prejudicial to the interests of the company, or
(b) in a manner oppressive to some part of the members (including himself) may make an application to the Court for an order under this section.
(2) An application under sub-section (1) may also be made by the Central Government if it is satisfied that the affairs of the company are being conducted as aforesaid.
(3) No application under sub-section (i) shall be made by any member unless-
(a) in the case of a company having a share capital, the member complaining-
(i) has obtained the consent in writing of not less than one hundred in number of the members of the company or not less than one-tenth in number of the members, whichever, is less or
(ii) holds not less than one-tenth of the issued share capital of the company upon which all calls and other sums due have been paid; and
(b) in the case of a company not having a share capital the member complaining has obtained the consent in writing of not less than one-fifth in number of the members, and where there are several persons having the same interest in any such application and the condition specified in clause (a) or clause (b) of this sub-section is satisfied with reference to one or more of such persons, any one or more of them may, with the permission of the Court, make the application on behalf of, or for the benefit of, all persons so interested, and the provisions of rule 8 of Order 1 of the First Schedule to the Code of Civil Procedure, 1908 (Act V of 1908), shall apply to any such application as it applies to any suit within the Page 26 of 88 C/SCA/2179/2014 CAV JUDGMENT meaning of that rule.
(4) If on any such application the Court is of opinion-
(a) that the company's affairs are being conducted as aforesaid, and
(b) that to wind-up the company would unfairly and materially prejudice the interests of the company or any part of its members, but otherwise the facts would justify the making of a winding-up order on the ground that it is just and equitable that the company should be wound up, the Court may, with a view to bringing to an end the matters complained of, make such order in relation thereto as it thinks fit.
(5) Without prejudice to the generality of the powers vested in a Court under sub-section (4), any order made under that sub-
section may provide for-
(a) the regulation of the conduct of the company's affairs in future;
(b) the purchase of the shares or interests of any members of the company by other members thereof or by the company;
(c) in the case of a purchase of shares or interests by the company being a company having a share capital, for the reduction accordingly of the company's capital or otherwise;
(d) the termination of any agreement, howsoever arrived at, between the company and its manager, managing agent, managing director or any of its other directors;
(e) the termination or revision of any agreement entered into between the company and any person other than any of the persons referred to in clause
(d), provided that no such agreement shall be terminated or revised except after due notice to the party concerned and, in the case of the revision of any such agreement, after obtaining the consent of the party concerned thereto;
(f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under sub-section (1), which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference.
Page 27 of 88 C/SCA/2179/2014 CAV JUDGMENT(6) Where an order under this section makes any alteration, in or addition to, the memorandum or articles of any company, then notwithstanding anything contained in any other provision of this Act, but subject to the provisions of the order, the company concerned shall not have power without the leave of the Court to make any further alteration in, or addition to, the memorandum or articles inconsistent with the provisions of the order, but subject to the foregoing provisions of this sub-section the alterations or additions made by the order shall have the same effect as if duly made by a resolution of the company, and the provisions of this Act shall apply to the memorandum or articles as to altered or added to accordingly.
(7) A certified copy of every order under this section, altering or adding to, or giving leave to alter or add to, the memorandum or articles of any company shall, within fifteen days after the making thereof, be delivered by the company to the registrar for registration, and if a company makes default in complying with the provisions of this sub-section, the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees.
(8) It shall be lawful for the Court upon the application of any petitioner or of any respondent to a petition under this section and upon such terms as to the Court appears just and equitable, to make any such interim order as it thinks fit for regulating the conduct of the affairs of the company pending the making of a final order in relation to the application.
(9) Where any manager, managing agent, managing director or any other director or any other person who has not been impleaded as a respondent to any application under this section applies to be made a party thereto, the Court shall, if it is satisfied that his presence before the Court is necessary in order to enable the Court effectually and completely to adjudicate upon and settle all the questions involved in the application, direct that the name of any such person be added to the application.
(10) In any case in which the Court makes an order terminating any agreement between the company and its manager, managing agent or managing director or any of its other directors, as the case may be, the Court may, if it appears to it that the manager, managing agent, managing director or other director, as the case may be, has misapplied or retained or become liable to accountable for any money or property of the company or has been guilty of any misfeasance or breach of trust in relation to the company, compel him to repay or restore the money or property or any part thereof respectively with interest at such rate as Page 28 of 88 C/SCA/2179/2014 CAV JUDGMENT the Court thinks just, or to contribute such sums to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the court thinks just, and the provisions of sections 235 and 236 of this Act shall apply as they apply to a company in the course of being wound up.
27. The present provisions of Sections 397, 398 read with Section 402 of the Act are almost the same like the provision of Section 153- C of the 1913 Act except that, now the aspect as regard public interest is covered. The jurisdiction to deal with the application under Sections 397 and 398 of the Act was initially with the High Court. It was then conferred on CLB by Companies (Amendment) Act, 1988.
28. However, still the question arises whether the Civil Court's jurisdiction is preserved in respect of the matters falling under Sections 397, 398 read with Section 402 of the Act.
29. Ordinarily, the remedies available before the civil court in general are action in tort, action to enforce agreement, to seek redressal for the relief for breach of the agreement, to seek redressal for the relief as regards property rights. The other remedies are as regards the religious rights, the specific matters covered under the Code of Civil Procedure, like suits for public nuisance under Section 91, for public charities under Section 92 and other supplementary proceedings covered under Sections 94 and 95. It is required to be noted that the Civil Court is also empowered to refer the possible terms of settlement under Section 89 of Part-V of the Code to 'Arbitration for 'Settlement of disputes outside the Court' in respect of the proceedings pending before it.
30. It is well settled principle of law that exclusion of jurisdiction of Civil Court in respect of a dispute of civil nature is not to be readily inferred unless it is found expressly or impliedly barred by the statute. There is no express bar contained in the Act excluding the jurisdiction of the civil court for the matters covered by Sections 397, 398 read with Section 402 of the Act. Therefore, further question Page 29 of 88 C/SCA/2179/2014 CAV JUDGMENT arises whether the jurisdiction of the civil court for such matters is impliedly barred.
31. Following are the views expressed in judgments relied on by learned advocates on the above aspect:
[1] In the case of Shanti Prasad Jain (supra), the Hon'ble Supreme Court has observed in para 14 and 18 as under:-
"14....
It gives a right to members of a company who comply with the conditions of S. 399 to apply to the Court for relief under S. 402 of the Act or such other relief as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The Court then has power to make such orders under S. 397 read with S. 402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law, however, has not defined what is oppression for purposes of this Section, and it is left to Court to decide on the facts of each case whether there is such oppression as calls for action under this Section.
18. In Harmer's case, 1958-3 All ER 689, it was held that "the word 'oppressive' meant burdensome, harsh and wrongful".
It was also held that "the Section does not purport to apply to every case in which the facts would justify the making of a winding up order under the just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression". It was also held that '"the result of applications under S.210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision". The circumstances must be such as to warrant the inference that "there had been at least, an unfair abuse of powers and an impairment of confidence in the probity with which the company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The phrase "oppressive to some part of the members"
suggests that the conduct complained of "should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on Page 30 of 88 C/SCA/2179/2014 CAV JUDGMENT which every share-holder who entrusts his money to a company is entitled to rely..... But, apart from this, the question of absence of mutual confidence per se between partners, or between two sets of share-holders, however, relevant to a winding up seems to have no direct relevance to the remedy granted by S. 210. It is oppression of some part of the share-holders by the manner in which the affairs of the company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not come within S. 210. It is not lack of confidence between share-holders per se that brings S. 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involved at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholders."
[2] In the case of Mohanlal Ganpatram (supra), this Court has held and observed in para 25 and 27 as under:-
25. Sections 397 and 398 are part of a fasciculus of Sections commencing from Section 397 and, ending with Section 407 and this fasciculus of Sections occurs in Section A dealing with Powers of Court under Chapter VI headed "Prevention of Oppression and Mismanagement". Under Section 397 any member of a Company who complains that the affairs of the Company are being conducted in a manner oppressive to any member or members including any one or more of themselves, may petition the Court which, if satisfied that the Company's affairs are being conducted in a manner oppressive to any member or members and that the facts justify the making of a winding up order on the ground that it is just and equitable to do so but that this would unfairly prejudice such member or members, may make such order as it thinks fit with a view to bringing to an end the matters complained of. This Section corresponds to Section 210 of the English Companies Act, 1948. Section 398 considerably enlarges the scope of the remedy by providing that any members of a Company who complain that the affairs of the Company are being conducted in a manner prejudicial to the interests of the Company or that a material change has taken place in the management or control of the Company, and that by reason of such change, it is likely that the affairs of the Company will be conducted in a manner prejudicial to the interests of the Company, may apply to the Court and the Court may, if it is of the opinion that the affairs of the Company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the Company, it is likely that the affairs of the Company will be conducted as aforesaid, make such order as it thinks fit with a view to bringing to an end or preventing the matters complained of or apprehended. It is Page 31 of 88 C/SCA/2179/2014 CAV JUDGMENT obvious that this remedy provided by Section 398 is of a much wider nature than the remedy under Section 397, since unlike the remedy under Section 397, it is not limited by the requirement that the facts must be such as justify the making of the winding up order against the Company on the ground that it is just and equitable to do so. The question of construction which arises for determination on these provisions is as to what is the extent of the power of the Court under Section 397 or 398. Does the power of the Court extend to the making of an order, setting aside or interfering with past and concluded transactions between a Company and a third party which are no longer continuing wrongs or is the power of the Court confined to the making of an order preventing future oppression or mismanagement ? Mr. S.B. Vakil, learned advocate appearing on behalf of the petitioners, pleaded for former construction on the ground that such construction would enlarge the power of the Court rather than limit it and in support of this plea he relied on the well-known rule of interpretation that in the case of provisions of a remedial nature, which Sections 397 and 398 undoubtedly were, the construction to be made should be such as will suppress the mischief and advance the remedy and add force and life to the cure and remedy according to the true intent of the makers of the Act, pro bono publico.
Now Mr. S.B. Vakil is certainly right in his submission that Sections 397 and 398 being designed to suppress an acknowledged mischief, they should receive liberal interpretation and the Court should give such construction as will advance the remedy, but even applying this principle of interpretation, it is not possible to accept the construction contended for on behalf of the petitioners. The reasons are as follows :
27. Turning to Sections 397 and 398, I find that the language of these Sections also far from conferring any power on the Court to set aside on interfere with past and concluded transactions between a Company and third parties which are no longer continuing wrongs, confines the power of the Court to making an order for the purpose of putting an end to oppression or mismanagement on the part of controlling share-holders. It is undoubtedly true that the power of the Court under Sections 397 and 398 is very wide - it is conferred in terms of the widest amplitude - and the Court can make such order as it thinks fit, but this power is conditioned by the purpose for which it can be exercised, namely, "with a view to bringing to end the matters complained of' in a case under Section 397 and "with a view to bringing to an end or preventing the matters complained of or apprehended" in a case under Section 398. These words indicate the confines within which the power of the Court under Sections 397 and 398 must operate. Now what are these confines ? The answer is clear from the language of Sections 397 and 398. The remedy under Section 397 can be invoked only when the affairs of the Company are being Page 32 of 88 C/SCA/2179/2014 CAV JUDGMENT conducted in a manner oppressive to a shareholder or shareholders and similarly the remedy under S. 398 can be invoked only when the affairs of the Company are being conducted in a manner prejudicial to the interests of the Company. Of course when I say this I am referring only to the first part of Section 398 and leaving out of consideration the second part to which I shall refer a little later. Sections 397 and 398 thus clearly postulate that there must be at the date of the application a continuing course of conduct of the affairs of the Company which is oppressive to any share-
holder or share-holders or prejudicial to the interests of the Company and it is this course of oppressive or prejudicial conduct which would form the subject-matter of the complaint in the application. Now the purpose for which an order can be made under Sections 397 and 398 being to bring to an end the matters complained of and the matters complained of in an application under these Sections being a course of conduct on the part of controlling shareholders in the management of the affairs of the Company which is oppressive to any shareholder or share-holders or prejudicial to the interests of the Company it is clear that an order can be made under these Sections only for the purpose of bringing to an end such course of oppressive or prejudicial conduct, that is, for the purpose of putting an end to oppression or mismanagement on the part of controlling shareholders so that there may not be in future such oppression or mismanagement. The language of Sections 397 and 398 leaves no doubt as to the true intendment of the Legislature and it is transparent that the remedy provided by these Sections is of a preventive nature so as to bring to an end oppression or mismanagement on the part of controlling shareholders and not to allow its continuance to the detriment of the aggrieved shareholders or the Company, The remedy is not; intended to enable the aggrieved shareholders to set at naught what has already been done by controlling shareholders in the management of the affairs of the Company. If such were the intention of the Legislature, which as I will presently show it could never have been, the language of Sections 397 and 398 would have been different and the Legislature would not have confined the power of the Court by limiting the purpose for which it can be exercised under the sections. That the remedy provided by Sections 397 and 398 is essentially preventive in character is also borne; out by the second part of Section 398 which applies when a material change has taken place in the management or control of a Company and by reason of such change it is likely that the affairs of the Company would be conducted in a manner prejudicial to the interests of the Company and empowers the Court in such a case to make an order with a view to preventing the matters apprehended, namely, the prejudicial conduct of the affairs of the Company, so that such prejudicial conduct may not at ail result from such change and may Be totally prevented. Whereas the first part of Section 398 applies to a case where Page 33 of 88 C/SCA/2179/2014 CAV JUDGMENT the affairs of the Company are being conducted in a manner prejudicial to the interests of the Company and it is required to put an end to such existing course of prejudicial conduct, the second part of the Section applies where there is no existing course of prejudicial, conduct but prejudicial conduct is apprehended by reason of a material change in the management or control of the Company and what is, therefore, required is the prevention of occurrence of such prejudicial conduct. These then are the confines within which the remedy provided by Sections 397 and 398 operates. But it must be remembered that within these confines the remedy is a very potent and effective remedy, since the power it confers on the Court is extremely wide and the Court can pass such order as it thinks necessary for the purpose of putting an end to oppression or mismanagement on the part of controlling shareholders. The nature of the order would depend on the state of affairs prevailing in the Company and the nature of the restrictions required to put an end to such state of affairs. The necessity of interference under these Sections may arise in an infinite variety of circumstances and the Legislature has, therefore, left the discretion of the. Court unfettered in the matter of making an appropriate order. Such power can, however, be exercised by the Court only for the purpose of bringing to an end oppressive or prejudicial conduct in the management of the affairs of the Company.
[3] In the case of Marikar (Motors) (supra), the Kerala High Court has held and observed on page 369 to 371 as under:-
"Tested in the above background, the reliefs claimed in the case on hand in so far as they relate to the validity of the 37th and 38th annual general meetings and the co-option of defendants Nos. (3) to (6) appear to be within the scope of a representative action recognised as an exception to the rule in Foss v. Barbottle [1843] 2 Hare 461. So too would be the complaint regarding oppression and mismanagement. Gower catalogues five classes of cases where a suit by a shareholder instead of by the company is considered permissible (pp. 644, 645):
" (i) When it is complained that the company is acting or proposing to act ultra vires,
(ii) When the act complained of, though not ultra vires the company, could be effective only if resolved upon by more than a simple majority vote, i. e., where a special or extraordinary resolution is required and (it is alleged) has not been validly passed,
(iii) Where it is alleged that the personal rights of the plaintiff shareholder have been infringed or are Page 34 of 88 C/SCA/2179/2014 CAV JUDGMENT about to be infringed at any rate if the wrong to the plaintiff could not be rectified by an ordinary resolution of the company,
(iv) Where those who control the company are perpetrating a fraud on the minority,.. and
(v) Any other case where the interests of justice require that the general rule, requiring suit by a company, should be disregarded."
The decisions in Joseph v. Jos [1964] KLT 234 ; 34 Comp Cas 931 (Ker) and Star Tile Works v. N. Govindan, AIR 1959 Ker 254 also support the view that instances of the present kind are recognised exceptions to Foss v. Harbottle [1843] 2 Hare
461. The last question is as to whether the provisions of Chap. VI of the Act exclude the jurisdiction of civil courts in matters relating to oppression and mismanagement. Section 397 provides that any members of a company having a grievance that its affairs are being conducted in a manner oppressive to them "may apply to the court for an order under this sub-section". Section 398 makes a like provision where the grievance is that the affairs are conducted in a manner prejudicial to the company's interests. But only a group of members having the specified voting strength under Section 399 could resort to these remedies. Section 408 empowers the Central Govt. also to grant some relief from oppression and mismanagement to the minority, but here again the application must be by a specified number of shareholders. If the argument on behalf of the defendants is that these statutory remedies exclude recourse to the ordinary courts, the short answer is that the plaintiffs here do not admittedly have the necessary voting strength to proceed under any of the three sections. Mr. Potti refers to the decision in Nava Samaj v. Civil fudge, AIR 1966 MP 286, wherein Dixit C. J. said thus (p. 290, Col. 2):
"Where a particular court is specified or a special tribunal is created, by or under the authority of an Act of Legislature, for the purpose of determining questions as to the rights which are the creation of the Act, then the jurisdiction of that court or tribunal is, unless otherwise provided, exclusive."
Apart from the circumstance that the other learned judge on the Bench was not pre-pared to go to that extent, it is doubtful whether the right to complain against oppression is a new creation of the Companies Act. If at all, the right created by the Act is to move the company court, and that right can be exercised only by the required number of shareholders joining together. The true question, it appears to me, is whether the scope of Chap. VI is only to provide a convenient remedy for the minority shareholders under certain conditions, or whether the provisions therein are Page 35 of 88 C/SCA/2179/2014 CAV JUDGMENT intended to exclude all other remedies; and in order to incline to the latter view, I would require much more than a bare reference to a rule of construction about the creation of new jurisdictions. Suits by minority shareholders against oppression and mismanagement have been, as noticed earlier, a time-honoured exception to the rule in Foss v. Harbottle [1843] 2 Hare 461 and in the absence of Words expressly or clearly barring them, it is not possible to hold that Sections 397, 398 and 408 of the Companies Act exclude the jurisdiction of the ordinary courts."
[4] In the case of Pradip Kumar Sarkar (supra), the Calcutta High has held and observed on page 511 to 512 as under:-
"In this interlocutory application, the court is concerned with the broad question as to whether there are reasonable grounds to come to a prima facie finding as to the manipulation of the transfer of shares which would justify an order for investigation and at the trial of the suit pending such investigation, the supersession of the board. It is no doubt true that 1,348 shares are the balance shares and if the transfer of such shares impugned by the plaintiffs is ultimately upheld at the trial, the present management cannot be said to have the support of the majority. In view of the rival contentions of the parties and pending such investigation, it is difficult to prima facie accept the claims of the defendants that they have the support of the majority. "Thus, the balance of convenience cannot be said to be in favour of the defendants for allowing them to continue in office in the face of serious prima facie infirmities of several transfers and transmissions of shares followed again by transfers resulting in mutation. The complaint of the plaintiffs in this respect requires further probe and investigation and cannot be dismissed as frivolous. Pending such investigation which is possible, at the trial of the suit, the question arises as to what further interim protection can and should be granted. The first ad interim order passed on September 17, 1986, has left the question of the validity of the annual general meeting to abide by the results of this application. In view of the absence of prima facie evidence being produced by the company in support of the impugned transfers of 1,348 shares and having regard to the unsatisfactory evidence produced in respect of the transfers and/or transmissions of some of the shares, it cannot be said that the votes in respect of the said 1,348 shares or a part thereof, in favour of the present management, were validly cast. As a result, the support of the majority, claimed by the management, cannot be upheld. Hence, it is not possible to allow the defendants to give effect to the results of the said annual general meeting as claimed by them at this stage. In view of the aforesaid facts and circumstances, it is just Page 36 of 88 C/SCA/2179/2014 CAV JUDGMENT and proper that the interest of the petitioners, their supporters and all other shareholders of the company should be protected. Sections 397 and 398 of the Companies Act, 1956, confer a right on the shareholders who have the requisite qualification under Section 399 of the said Act to apply to the court for appropriate reliefs. These sections do not oust the jurisdiction of the civil court to entertain suits on the same subject-matter and where shareholders complain of mismanagement or oppression and of acts prejudicial to the interest of the company or prejudicial to public interest, the civil court may entertain a suit by shareholders and grant appropriate reliefs. On a construction of the provisions of Section 2(11) and Section 10 of the Companies Act, 1956, it has been held by the Division Bench of this court in Asansol Electric Supply Co. v. Chunnilal Das, [1972] 75 CWN 704, that the Companies Act does not exclude the jurisdiction of the civil court. Moreover, unless a statute, by express provision or by necessary implication, ousts the jurisdiction of the civil court, the civil court will have jurisdiction to try all suits of a civil nature. The ouster of jurisdiction of the civil court shall not be readily inferred. Sections 397 and 398 of the Act do not exclude, either expressly or by necessary intendment, the jurisdiction of the civil court."
[5] In the case of Cosmosteels Private Ltd. (supra), the Hon'ble Supreme Court has held and observed in para 8 and 10 as under:-
8. Sections 397 and 398 enable the minority shareholders to move the Court for relief against oppression by majority shareholders. In a petition under Ss. 397 and 398, Section 402 confers power upon the Court to grant relief against oppression, inter alia, by providing for the purchase of shares of any of the members of the Company by other members thereof or by the Company and in the case of purchase of its shares by the Company, the consequent reduction of the share capital of the Company. Rule 90 of the companies (court) Rules 1959, provides that where an order under Ss. 397 and 398 involves reduction of capital, the provisions of the Act and the Rules relating to such matter shall apply as the Court may direct.
10. The scheme of Sections 397 and 406 appears to constitute a code by itself for granting relief to oppressed minority shareholders and for granting appropriate relief, a power of widest amplitude, inter alia, lifting the ban on company purchasing its shares under Court's direction, is conferred on the Court. When the Court exercises this power by directing a purchase of its shares by the Company, it would necessarily involve reduction of the capital of the Company.
Is such power of the Court subject to a resolution to be adopted by the members of the Company which, when passed with statutory majority, has to be submitted to Court Page 37 of 88 C/SCA/2179/2014 CAV JUDGMENT for confirmation? No canon of construction would permit such an interpretation in which the statutory power of the Court for its exercise depends upon the vote of the members of the Company. This would inevitably be the situation if reduction of share capital can only be brought about by resorting to the procedure prescribed in Ss. 100 to 104. Additionally, it would cause inordinate delay and the very purpose of granting relief against oppression would stand self defeated. Viewed from a slightly different angle, it would be impossible to carry out the directions given under S. 402 for reduction of share capital if the procedure under Ss. 100 to 104 is required to be followed. Under Ss. 100 to 104 the Company has to first adopt a special resolution for reduction of share capital if its articles so permit. After such a resolution is adopted which, of necessity must be passed by majority, and it being a special resolution, by a statutory majority, it will have to be submitted for confirmation to the Court. Now, when minority shareholders complain of oppression by majority and seek relief against oppression from the Court under Ss. 397 and 398 and the Court in a petition of this nature considers it fair and just to direct the Company to purchase the shares of the minority shareholders to relieve oppression, if the procedure prescribed by Ss. 100 to 104 is required to be followed, the resolution will have to be first adopted by the members of the Company but that would be well nigh impossible because the very majority against whom relief is sought would be able to veto it at the threshold and the power conferred on the Court would be frustrated. That could never have been the intention of the Legislature. Therefore, it is not conceivable that when a direction for purchase of shares is given by the Court under S. 402 and consequent reduction in share capital is to be effected, the procedure prescribed for reduction of share capital in Ss. 100 to 104 should be required to be followed in order to make the direction effective.
[6] In the case of Kamal Kumar Dutta (supra), Hon'ble Supreme Court has held and observed in para 21 as under:-
21. But after the amendment the power which was being exercised under Sections 397 and 398 of the Act by learned Single Judge of the High Court is being exercised by the CLB under Section 10E of the Act. Appeal against the order passed by the CLB, lies to the High Court under Section 10F of the Act. Therefore, the position which was obtaining prior to the amendment in 1991 was that any order passed by the Single Judge exercising the power under Sections 397 and 398 of the Act, the appeal used to lie before the Division Bench of the High Court. But after the amendment the power has been given to the CLB and appeal has been provided under Section 10F of the Act. Thus, Part 1A was Page 38 of 88 C/SCA/2179/2014 CAV JUDGMENT inserted by the amendment with effect from 1.1.1964. But the constitution of the Company Law Board and the power to decide application under Sections 397 and 398 of the Act was given to the CLB with effect from 31.5.1991 and appeal was provided under Section 10F of the Act with effect from 31.5.1991. Therefore, on reading of Sections 10E, 10F , 397 and 398 of the Act, it becomes clear that it is a complete code that applications under sections 397 and 398 of the Act shall be dealt with by the CLB and the order of the CLB is appealable under Section 10F of the Act before the High Court. No further appeal has been provided against the order of the learned Single Judge.Mr. Nariman, learned senior counsel for the respondents submitted that an appeal is a vested right and therefore, under clause 15 of the Letters Patent of the Calcutta High Court, the appellants have a statutory right to prefer appeal irrespective of the fact that no appeal has been provided against the order of the learned Single Judge under the Act. In this connection, learned counsel invited our attention to a decision of this Court in the case of Garikapatti Veeraya vs. N.Subbiah Choudhury reported in [1957] SCR 488 and in that it has been pointed out that the appeal is a vested right. The majority took the view that the appeal is a vested right. It was held as follows :
"... that the contention of the applicant was well-founded, that he had a vested right of appeal to the Federal Court on and from the date of the suit and the application for special leave should be allowed.
The vested right of appeal was a substantive right and, although it could be exercised only in case of an adverse decision, it was governed by the law prevailing at the time of commencement of the suit and comprised all successive rights of appeal from court to court, which really constituted one proceeding. Such a right could be taken away only by a subsequent enactment either expressly or by necessary intendment."
[7] In the case of Krishna Kant (supra), the Hon'ble Supreme Court has held and observed in para 35 as under:-
35. We may now summarise the principles flowing from the above discussion:
(1) Where the dispute arises from general law of contract, i.e., where reliefs are claimed on the basis of the general law of contract, a suit filed in civil court cannot be said to be not maintainable, even though such a dispute may also constitute an "industrial dispute" within the meaning of Section 2(k) or Section 2-A of the Industrial Disputes Act, 1947.Page 39 of 88 C/SCA/2179/2014 CAV JUDGMENT
(2) Where, however, the dispute involves recognition, observance or enforcement of any of the rights or obligations created by the Industrial Disputes Act, the only remedy is to approach the forums created by the said Act.
(3) Similarly, where the dispute involves the recognition, observance or enforcement of rights and obligations created by enactments like Industrial Employment (Standing Orders) Act, 1946 - which can be called 'sister enactments' to Industrial Disputes Act - and which do not provide a forum for resolution of such disputes, the only remedy shall be to approach the forums created by the Industrial Disputes Act provided may constitute industrial disputes within the meaning of Section 2(k) and Section 2-A of Industrial Disputes Act or where such enactment says that such dispute shall be either treated as an Industrial dispute or says that it shall be adjudicated by any of the forums created by the industrial Disputes Act. Otherwise, recourse to Civil Court is open.
(4) It is not correct to say that the remedies provided by the Industrial Disputes Act are not equally effective for the reason that access to the forum depends upon a reference being made by the appropriate government. The power to make a reference conferred upon the government is to be exercised to effectuate the object of the enactment and hence not unguided. The rule is to make a reference unless, of course, the dispute raised is a totally frivolous one ex facie. The power conferred is the power to refer and not the power to decide, though it may be that the government is entitled to examine whether the dispute is ex facie frivolous, not meriting an adjudication.
(5) Consistent with the policy of law aforesaid, we commend to the Parliament and the State Legislatures to make a provision enabling a workman to approach the Labour Court/Industrial Tribunal directly - i.e., without the requirement of a reference by the Government - in case of industrial disputes covered by Section 2-A of the Industrial Disputes Act.
This would go a long way in removing the misgivings with respect to the effectiveness of the remedies provided by the Industrial Disputes Act.
(6) The certified Standing Orders framed under and in accordance with the Industrial Employment (Standings Orders) Act, 1946 are statutorily imposed conditions of service and are binding both upon the employers and employees, though they do not Page 40 of 88 C/SCA/2179/2014 CAV JUDGMENT amount to "statutory provisions". Any violation of these Standing Orders entitles an employee to appropriate relief either before the forums created by the Industrial Disputes Act or the Civil Court where recourse to Civil Court is open according to the principles indicated herein.
(7) The policy of law emerging from Industrial Disputes Act and its sister enactments is to provide an alternative dispute resolution mechanism to the workmen, a mechanism which is speedy, inexpensive, informal and un-encumbered by the plethora of procedural laws and appeals upon appeals and revisions applicable to civil courts. Indeed, the powers of the Courts and Tribunals under the Industrial Disputes Act are far more extensive in the sense that they can grant such relief as they think appropriate in the circumstances for putting an end to an industrial dispute.
[8] In the case of Bal Mukund Bairwa (supra), resolving the conflict between Krishna Kant case and Khadarmal Case [(2006)1 SCC 59], Hon'ble Supreme Court has held and observed in para 12,13,14,33,36 and 49 as under:-
12. Section 9 of the Code is in enforcement of the fundamental principles of law laid down in the maxim Ubi jus ibi remedium. A litigant, thus, having a grievance of a civil nature has a right to institute a civil suit in a competent civil court unless its cognizance is either expressly or impliedly barred by any statute. Ex facie, in terms of Section 9 of the Code, civil courts can try all suits, unless barred by statute, either expressly or by necessary implication.
13. The civil court, furthermore, being a court of plenary jurisdiction has the jurisdiction to determine its jurisdiction upon considering the averments made in the plaint but that would not mean that the plaintiff can circumvent the provisions of law in order to invest jurisdiction on the civil court although it otherwise may not possess. For the said purpose, the court in given cases would be entitled to decide the question of its own jurisdiction upon arriving at a finding in regard to the existence of the jurisdictional fact.
14. It is also well settled that there is a presumption that a civil court will have jurisdiction and the ouster of civil court's jurisdiction is not to be readily inferred. A person taking a plea contra must establish the same. Even in a case where jurisdiction of a civil court is sought to be barred under a statute, the civil court can exercise its jurisdiction in respect of some matters particularly when the statutory authority or Page 41 of 88 C/SCA/2179/2014 CAV JUDGMENT Tribunal acts without jurisdiction.
33. A dispute arising in between an employer and employee may or may not be an industrial dispute. The dispute may be in relation to or arising out of a fundamental right of the employee, or his right under a Parliamentary Act and the Regulations framed thereunder, and/or a right arising under the provisions of the Industrial Disputes Act or the sister laws and may relate to same or similar rights or different rights, or even may be based on common law right or contractual right. The question in regard to the jurisdiction of the civil court must, therefore, be addressed having regard to the fact as to which rights or obligations are sought to be enforced for the purpose of invoking or excluding the jurisdiction of a civil court.
36. If an employee intends to enforce his constitutional rights or a right under a statutory Regulation, the civil court will have the necessary jurisdiction to try a suit. If, however, he claims his right and corresponding obligations only in terms of the provisions of the Industrial Disputes Act or the sister laws so called, the civil court will have none. In this view of the matter, in our considered opinion, it would not be correct to contend that only because the employee concerned is also a workman within the meaning of the provisions of the 1947 Act or the conditions of his service are otherwise governed by the Standing Order certified under the 1946 Act ipso facto the Civil Court will have no jurisdiction. This aspect of the matter has recently been considered by this Court in Rajasthan State Road Transport Corporation and Ors. vs. Mohar Singh [(2008) 5 SCC 542]. The question as to whether the civil court's jurisdiction is barred or not must be determined having regard to the fact of each case.
49. An assumption on the part of this Court that all such cases would fall only under the Industrial Disputes Act or sister laws and, thus, the jurisdiction of the civil court would be barred, in our opinion, may not be the correct interpretation of Premier Automobiles Ltd. (supra) which being a three-
Judge Bench judgment and having followed Dhulabhai (supra), which is a Constitution Bench judgment, is binding on us.
32. Sections 2(11), 2(14) and 10 of the Act reads as under:-
2(11) " the Court " means,
(a) with respect to any matter relating to a company (other than any offence against this Act), the Court having jurisdiction under this Act with respect to that matter relating to that company, as provided in section 10 ;
(b) with respect to any offence against this Act, the Court of a Magistrate of the First Class or, as the case may be, a Page 42 of 88 C/SCA/2179/2014 CAV JUDGMENT Presidency Magistrate, having jurisdiction to try such offence ;
2(14) "District Court " means the principal Civil Court of original jurisdiction in a district, but does not include a High Court in the exercise of its ordinary original civil jurisdiction ;
10. Jurisdiction of Courts.
(1) The Court having jurisdiction under this Act shall be :
(a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of sub-section (2) ; and
(b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette and subject to such restrictions, limitations and conditions as it thinks fit, empower any District Court to exercise all or any of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred
(a) in respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407, both inclusive ;
(b) in respect of companies with a paid-up share capital of not less than one lakh of rupees, by Part VII (sections 425 to 560) and the other provisions of this Act relating to the winding up of companies. (3) For the purposes of jurisdiction to wind up companies, the expression " registered office " means the place which has longest been the registered office of the company during the six months immediately preceding the presentation of the petition for winding up.
From sub-section (2), it appears that only the High Court was having exclusive jurisdiction for matters covered by Sections 397 to 407 with other specified matters.
33. Subsequently, by virtue of Companies (Amendment) Act, 1988 Page 43 of 88 C/SCA/2179/2014 CAV JUDGMENT brought in force with effect from 31.5.1991, the powers to deal with matters under Sections 397 to 405 are conferred upon the CLB and now such powers are conferred upon the Tribunal by Companies (Second Amendment) Act, 2002 which have still not been brought into force.
34. Thus, like the exclusive jurisdiction available to the High Court before amendment, the CLB has been conferred the exclusive powers to deal with the matters under Sections 397 to 405 of the Act. The CLB is having all trapping of the Court and exercising the judicial powers as held by the Hon'ble Supreme Court in the case of Canara Bank Vs. Nuclear Power Corporation of India Ltd. and others reported in 1995 (Suppl.)3 SCC 81.
35. In the case of Ammonia Supplies Corporation (P) Ltd. (supra), the Hon'ble Supreme Court while interpreting the word 'Court' used in Section 2(11) read with Section 10 of the Act in the context of Section 155 of the Act to determine whether jurisdiction of civil court is barred, has held and observed in para 31 and 32 as under:-
"31. Sub-section (1)(a) of Section 155 refers to a case where the name of any person without sufficient cause entered or omitted in the Register of Members of a company. The word 'sufficient cause' is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the Rules or what ought to have been done under the Act and the Rules but not done. Reading of this sub- clause spells out the limitation under which the Court has to exercise its jurisdiction. It cannot be doubted in spite of exclusiveness to decide all matter pertaining to the rectification it has to act within the said four corners and adjudication of such matter cannot be doubted to be summary in nature. So, whenever a question is raised Court has to adjudicate on the facts and circumstances of each case. If it truly is rectification all matter raised in that connection should be decided by the Court under Sec. 155 and if it finds adjudication of any matter not falling under it, it may direct a party to get his right adjudicated by Civil Court. Unless jurisdiction is expressly or implicitly barred under a Statute, for violation or redress of any such right Civil Court would have jurisdiction. There is nothing under the Companies Act expressly barring the jurisdiction of the Page 44 of 88 C/SCA/2179/2014 CAV JUDGMENT Civil Court, but the jurisdiction of the 'court' as defined under the Act exercising its powers under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the Civil Court is impliedly barred. We have already held above the jurisdiction of the 'court' under Sec. 155, to the extent it has exclusive, the jurisdiction of Civil Court is impliedly barred. For what is not covered as aforesaid the Civil Court would have jurisdiction. Similarly we find even under Sec. 446(1), its words itself indicate jurisdiction of Civil Court is not excluded. This sub-section states, '........ no suit or legal proceedings shall be commenced ........ or proceeded with ....... except by leave of the court'. The words 'except by leave of the court' itself indicate on leave being given the Civil Court would have jurisdiction to adjudicate one's right. Of course discretion to exercise such power is with the 'court'. Similarly under Sec. 446(2) 'court' is vested with powers to entertain or dispose of any suit or proceedings by or against the company. Once this discretion is exercised to have it decided by it, it by virtue of language therein excludes the jurisdiction of the Civil Court. So we conclude the principle of law as decided by the High Court that jurisdiction of Court under Section 155 is summary in nature cannot be faulted.Reverting to the second limb of submission by learned Counsel for the appellant that Court should not have directed for seeking permission to file suit only because a party for dispute sake states that the dispute raised is complicated question of facts including fraud to be adjudicated. The Court should have examined itself to see whether evenprima faciewhat is said is complicated question or not. Even dispute of fraud, if by bare perusal of the document or what is apparent on the face of it on comparison of any disputed signature with that of the admitted signature the Court is able to conclude no fraud, then it should proceed to decide the matter and not reject it only because fraud is stated. Further on the other hand learned Counsel for the respondent totally denies any share having been purchased by the appellant-Company or any amount paid to it. No transfer of any such share was ever approved by the Board of Director. It is urged the money even if advanced to Sri V. K. Bhargava by the appellant- Company, if at all was a private transaction between the two to which respondent-Company has no concern. So we find there is total denial by the respondent.
32. We have gone through the judgment of the High Court. It has rightly held the law pertaining to the jurisdiction of 'court' under Sec. 155 and even referred to some of the documents of the appellant but concluded since they are disputed and said to be forged hence directed for seeking leave if advised for suit. We feel it would have been appropriate if the Court would have seen for itself whether these documents are disputed and any document is alleged to be forged whether it said to be so only to exclude the jurisdiction of the Court or it is genuinely so. Similarly we Page 45 of 88 C/SCA/2179/2014 CAV JUDGMENT feel appropriate while deciding this the Court should take into consideration the submissions for the respondents, whether it would come within the scope of rectification or not in the light of what we have said above."
36. However, in the case of Dwarka Prasad Agarwal (D) By LRs. and Another Vs. Ramesh Chander Agarwal and others reported in (2003)6 SCC 220, the Hon'ble Supreme Court has held and observed in para 18 to 23 as under:-
18. Sections 9 and 10 of the Companies Act are as under :
"9. Act to override memorandum, articles etc.- Save as otherwise expressly provided in the Act-
(a) the provisions of this Act shall have effect notwithstanding anything to the contrary contained in the memorandum or articles of a company, or in any agreement executed by it, or in any resolution passed by the company in general meeting or by its Board of Directors, whether the same be registered, executed or passed, as the case may be, before or after the commencement of this Act; and
(b) any provision contained in the memorandum, articles, agreement or resolution aforesaid shall, to the extent to which it is repugnant to the provisions of this Act, become or be void, as the case may be."
"Jurisdiction of Courts.
10. (1) The High Court having jurisdiction under this Act shall be -
(a) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any District Court or District Courts subordinate to that High Court in pursuance of sub-section (2); and
(b) where jurisdiction has been so conferred, the District Court in regard to matters falling within the scope of the jurisdiction conferred, in respect of companies having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette and subject to such restrictions, limitations and conditions as it thinks fit, empower and District Court to exercise all or any of the jurisdiction conferred by this Act upon the Court, not being the jurisdiction conferred -
(a) in respect of companies generally, by Sections 237, 391, 394, 395 and 397 to 407, both inclusive;Page 46 of 88 C/SCA/2179/2014 CAV JUDGMENT
(b) in respect of companies with a paid-up share capital of not less than one lakh of rupees, by Part VII (Sections 425 to
560) and the other provisions of this Act relating to the winding up of companies.
(3) For the purposes of jurisdiction to wind up companies, the expression "registered office" means the place which has longest been the registered office of the company during the six months immediately preceding the presentation of the petition for winding up."
19. A bare perusal of the aforementioned provisions leaves no manner of doubt that thereby the jurisdiction of the civil Court has not been ousted. The civil Court, in the instant case, was concerned with the rival claims of the parties as to whether one party has illegally been dispossessed by the other or not. Such a suit, apart from the general law, would also be maintainable in terms of Section 6 of the Specific Relief Act, 1963. In such matters the Court would not be concerned even with the question as to title/ownership of the property.
20. In India, it is trite, that a person cannot be forcibly dispossessed except in accordance with law. (See Lallu Yeshwant Singh (dead) by Legal Representatives v. Rao Jagdish Singh and others, AIR 1968 SC 620 at page 622).
21. In Suwari Sanyasi Apparao and another v. Bodderpalli Lakshminarayana and another, (1962) Supp 1 SCR 8) , this Court upon considering the Press and Registration of Books Act, 1867 observed that the matter relating to ownership of the press is a matter of general law and the Court, thus, must follow that law. It was observed that a declared keeper of the press is not necessarily the owner thereof so as to be able to confer title to the press upon another.
22. The dispute between the parties was eminently a civil dispute and not a dispute under the provisions of the Companies Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil Courts to determine all disputes of civil nature unless the same is barred under a statute either expressly or by necessary implication. Bar of jurisdiction of a civil Court is not to be readily inferred. A provision seeking to bar jurisdiction of civil Court requires strict interpretation. The Court, it is well-settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil Court.The burden of proof in this behalf shall be on the party who asserts that the civil Court's jurisdiction is ousted. (See Sahebgouda (dead) by LRs. and others v. Ogeppa and others (2003 (3) Supreme
13). Even otherwise, the civil Court's jurisdiction is not completely ousted under the Companies Act, 1956.
Page 47 of 88 C/SCA/2179/2014 CAV JUDGMENT23. In R. Prakasam v. Sree Narayana Dharma Paripalana Yogam, (1980 (50) CC 611), it has been held that :
"......The purpose of S. 2 (11) read with S. 10 is only to enable the shareholders to decide as to which Court they should approach for remedy, in respect of that particular matter. It is difficult to construe the definition clause as one conferring jurisdiction, exclusive or otherwise; and even S. 10 refers only to "the Court having jurisdiction under this Act", i.e., where such jurisdiction is conferred by the Act, as under Sections 107, 155, 163 (2), 237, 397, 425, etc. In other words, the conferment of jurisdiction on "the Court" is not under S. 10, but by other provisions of the Act like those enumerated above. If, on the other hand, Sections 2 (11) and 10 are construed as not only nominating the Courts, but also conferring exclusive jurisdiction on them, the specific provisions in the other sections conferring jurisdiction on the Court to deal with the matters covered by them will become redundant. It may be that where the Act specifies the Company Court as the Forum for complaint in respect of a particular matter, the jurisdiction of the civil Court would stand ousted to that extent. This depends, as already noticed, on the language of the particular provisions (like Sections 107, 155, 397 and others) and not on Sections 2 (11) and 10. . . . . ."
37. As held and observed in para 22 of above decision, if the dispute between the parties is eminently a civil dispute, like the one in the said case, Civil Court has jurisdiction to decide such dispute.
38. Therefore, in light of above, it can be reasonably concluded that except the matters for which the Act has specified the Company Court or the CLB as the forum, the Civil Court has jurisdiction to decide the civil dispute. Thus, jurisdiction of civil court is impliedly excluded in respect of the matters covered under Sections 397 to 405 of the Act. Therefore, it is not possible to agree with the view expressed by Kerala High Court in Marikar (Motors) (supra) and with Calcutta High Court in Pradip Kumar Sarkar (supra). It is also not possible to follow the view expressed by Bombay High Court in CDS Financial Services (supra).
39. In the case of Bennet Coleman and Co. Vs. Union of India and others reported in 1977(47) Company Cases 92 (Bombay), the Bombay High Court has held and observed on page 113 to 120 as Page 48 of 88 C/SCA/2179/2014 CAV JUDGMENT under:-
"In our view, the submissions made by Mr. Sen on the point of legality or otherwise of the impugned orders will have to be appreciated in the context of the principal question as to what are the powers of the court when it is acting in proceedings instituted under section 397 and 298 read with section 402 of the Companies Act. The questions whether a board of directors of the type indicted in the impugned order could be reconstituted by the court or not and whether the court had power to frame an article inconsistent with the provisions of section 255 of the Act or not must in the ultimate analysis depend upon the true ambit of the powers of the court under section 397 or 398 read with section 402, for, if these sections confer upon the court jurisdiction and powers of the widest amplitude to pass appropriate orders which the circumstances of the case may require, it would be difficult to accept Mr. Sen's submissions that the impugned orders and directions are liable to be set aside on the basis that the reconstituted board or modified article 95 was not in consonance with section 255 of the Act. To correctly appreciate the ambit of the court's jurisdiction and the amplitude of the court's powers under section 397 and 398 read with section 402 of the Companies Act, 1956, it will be necessary to consider the entire scheme of the Act pertaining to corporate management of companies. At the outset, it may be stated that all these concerned provisions occur in Part VI of the Act which deals with the management and administration of companies. It may further be pointed out that in this part there are eight chapters. Chapter I contains general provisions with regard to corporate management and administration of the companies such as registered office, registers of members and debenture-holders, annual returns, meetings and proceedings, accounts, audit, investigation, etc.; Chapter II, which includes section 255, deals with directors, their qualification, disqualification and remuneration, meetings of the board, board's powers, procedure where directors are interested, etc.; Chapter III deals with managing agents, their appointment, remuneration, restrictions on their powers, etc.; Chapter IV deals with secretaries and treasurers; Chapter IV-A deals with powers of the Central Government to remove managerial personnel from office on the recommendation of the Tribunal; Chapter V deals with arbitration, compromises, arrangements and reconstructions; Chapter VI, which includes sections 397 to 409, deals with prevention of oppression and mismanagement; Chapter VII deals with constitution and powers of advisory committee and Chapter VIII contains miscellaneous provisions. It will thus be seen that section 255 on which substantially the entire argument of Mr. Sen is based is to be found in Chapter II which deals with directors and the constitution of the board, through which agency the corporate management of the affairs of a company is usually Page 49 of 88 C/SCA/2179/2014 CAV JUDGMENT undertaken, while Chapter VI, which contains material provisions from sections 397 to 409, deals with matters, pertaining to prevention of oppression and mismanagement arising out of corporate management. In other words, it is very clear that Chapter II which includes section 255 deals with corporate management of a company through directors in normal circumstances, while Chapter VI deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent oppression and/or mismanagement in the conduct of the affairs of a company. It is in view of this scheme which is very apparent on a fair reading of the arrangement of chapter and the sections contained in each chapter which are all grouped under Part VI of the Act that the question will have to be answered as to whether the powers of the court under Chapter VI (which includes sections 397, 398 and 402) should be read as subject to the provisions contained in the other chapters which deal with normal corporate management of a company and, in our view, in the context of this scheme having regard to the object that is sought to be achieved by sections 397 and 398 read with section 402, the powers of the court thereunder cannot be so read. Further, an analysis of the sections contained in Chapter VI of Part VI of the Act will also indicate that the powers of the court under section 397 or 398 read with section 402 cannot be read as being subject to the other provisions contained in sections dealing with usual corporate management of a company in normal circumstances. As stated earlier, Chapter VI deals with the prevention of oppression and mismanagement and the provisions therein have been divided under two heads - under head A powers have been conferred upon the court to deal with cases of oppression and mismanagement in a company falling under section 397 and 398 of the Act while under head B similar powers have been given to the Central Government to deal with cases of oppression and mismanagement in a company but it will be clear that some limitation have been placed on the Government's powers while there are no limitations or restrictions on the court's powers to pass orders that may be required for bringing to an end the oppression or mismanagement complained of and to prevent further oppression or mismanagement in future or to see that the affairs of the company are not being conducted in a manner prejudicial to public interest. In other words, whenever the legislature wanted to do so it has made a distinction between powers conferred on the Government (vide section 408) and powers conferred on the court (vide section 402) while dealing with similar emergent situations or extraordinary circumstances arising in the management of a company and in the case of the Government it has placed restrictions or limitations on the Government's powers but no restrictions or limitations of anything have been prescribed on the court's powers; if the legislature had desired that the court's powers Page 50 of 88 C/SCA/2179/2014 CAV JUDGMENT while acting under section 397 or 398 read with section 402 should be exercised subject to or in consonance with the other provisions of the Act it would have said so. Moreover, the topics or subjects dealt with by sections 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the court acting under section 402. Under section 397 read with section 402 power has been conferred on the court "to make such orders as it thinks fit" if it comes to the conclusion that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up "with a view to bringing to an end the matters complained of".
Similarly, under section 398 read with section 402 power has been conferred upon the court "to make such orders as it thinks fit" if it comes to the conclusion that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company or that a material change has taken place in the management or control of the company by reason of which it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, "with a view to bringing to an end or preventing the matters complained of or apprehended". Both the wide nature of the power conferred on the court and the object or object sought to be achieved by the exercise of such power are clearly indicated in sections 397 and 398. Without prejudice to the generality of the powers conferred on the court under these sections, section 402 proceeds to indicate what type of orders the court could pass and clauses (a) to (g) are clearly illustrative and not exhaustive of the type of such orders. Clauses (a) and (g) indicate the widest amplitude of the court's power : under clause (a) the court's order may provide for the regulation of the conduct of the company's affairs in future and under clause (g) the court's order may provide for any other matter for which in the opinion of the court it is just and equitable that provision should be made. An examination of the aforesaid section clearly brings out two aspects, first, the very wide nature of the power conferred on the court, and, secondly, the object that is sought to be achieved by the exercise of such power with the result that the only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed thereunder the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court's power. We are, therefore, unable to accept Mr. Sen's contention that the court's powers under section 398 read with section 402 should be read as subject to the other provision of the Act dealing Page 51 of 88 C/SCA/2179/2014 CAV JUDGMENT with normal corporate management or that the court's orders and directions issued thereunder must be in consonance with the other provisions of the Act.
There is another aspect of sections 397, 398 and 402 which also shows that no such limitation as is sought to be suggested by Mr. Sen can be read on the court's power while acting under the sections. Section 397 clearly suggests that the court must come to the conclusion that the company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up before any order could be passed by it. In other words, instead of destroying the corporate existence of a company the court has been enabled to continue its corporate existence by passing such orders as it thinks fit in order to achieve the objective of removing the oppression to any member or members of a company or to prevent the company's affairs from being conducted in a manner prejudicial to public interest. Similarly, sub-section (2) of section 398 clearly provides that where the court is of the opinion that the affairs of the company are being conducted in a manner suggested in sub-section (1), then, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. In other words, sections 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving the minority shareholders from acts of oppression and mismanagement or preventing its affairs being conducted in a manner prejudicial to public interest and if that be the objective the court must have power to interfere with the normal corporate management of the company. If under section 398 read with section 402 the court is required by its order to provide for the regulation of the conduct of the company's affairs in future because of oppression or mismanagement that has occurred during the course of normal corporate management, the court must have the power to supplant the entire corporate management, or rather corporate mismanagement by resorting to non- corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers, etc., who could be in charge of the affairs of the company. If the court were to have no such power the very object of the section would be defeated. We must observe in fairness to Mr. Sen that it was not disputed by him that the powers of the court under section 398 read with section 402 of the Companies Act were wide enough to enable the court to appoint an administrator or a special officer or a committee of advisers for the future management of the company and thereby supplant completely the corporate management through the board of directors and it was conceded that it should be so for the simple reason that if as a result of Page 52 of 88 C/SCA/2179/2014 CAV JUDGMENT corporate management that has been allowed to run for a certain period oppression or mismanagement has resulted, the court should have power to substitute the entire corporate management by some form of non-corporate management and while doing so the court cannot obviously have any regard or be subject to the other provisions dealing with the corporate form of management. But what was urged by Mr. Sen was that if while acting under section 398 read with section 402 the court thought fit to have recourse to a mode of corporate type of management, for example, if the court felt proper to have a board of directors for future management, then such corporate mode of management to be provide by the court should conform to other provisions of the Act dealing with corporate management. It is not possible to accept this contention of Mr. Sen for two reasons. In the first place, if the court's power under these sections is wide enough to have the corporate management supplanted wholly or completely, it is difficult to understand why the court should not have power to make a partial inroad or encroachment and have a truncated form of corporate management if the exigencies of the case required it, and any truncated form of corporate management can never conform to all the provisions dealing with corporate management. Secondly, it will all depend upon the facts and circumstances of each case as to how, in what manner and to what extent the court should allow the voice of the shareholders' directors on the board of directors to prevail over that of the other directors and we do not think that the court's powers in that behalf could in any manner be curbed. In our view, therefore, the position is clear that while acting under section 398 read with section 402 of the Companies Act the court has ample jurisdiction and very wide powers to pass such orders and give such direction as it thinks fit to achieve the object and there would be no limitation or restriction on such power that the same should be exercised subject to the other provisions of the Act dealing with normal corporate management or that such orders and directions should be in consonance with such provisions of the Act.
Considerable emphasis was laid by Mr. Sen on the fact that there was absence of a non-obstante clause in any of the relevant sections, viz., section 397, 398 and 402. His contention was that whenever the legislature intended that any of the provisions of the Act should be overridden and the legislature has clearly expressed its intention by using appropriate language, namely, by user of a non-obstante clause and since there was no non-obstante clause in section 397 or section 398 read with section 402 of the Act, the court's powers thereunder could not override the other provisions of the Act but would be subject to such provisions. In the first place, like a deeming provision which is sometimes made with a view to make explicit what is obvious, a non- obstante clause is also used at times ex abundanti cautela to make explicit what is obvious and, therefore, the absence of that clause would not necessarily lead to an inference Page 53 of 88 C/SCA/2179/2014 CAV JUDGMENT suggested by Mr. Sen. Secondly, normally, such non-obstante clause becomes necessary when the enacted provisions or enacted clause is necessarily going in conflict with the other provisions of the Act and if there would be no such conflict, then there would be no necessity to use a non-obstante clause and well shall indicate presently that there is no necessary conflict between the provisions of section 397 and section 398 read with section 402 and the provisions of section 255 of the Act and, therefore, the non-obstante clause must not have been used while enacting the relevant sections. By the very nature the provisions contained in sections 397 and 398 read with section 402 have been enacted to meet emergent situations and extraordinary circumstances while section 255 contains provisions which would operate when the normal corporate management of a company is being run. Normally, the two sets of circumstances in which the two sets of provisions would operate be mutually exclusive. Therefore, there is no question of a conflict necessarily arising between these two provisions and this, in our view, sufficiently explains the absence of a non-obstante clause in sections 397, 398 and 402 of the Act. It is true that while conferring powers on the Central Government to prevent oppression or mismanagement under section 408 a non-obstante clause has been used. But, indisputably, there is substantial difference between the powers conferred upon the court under section 397 or 398 read with section 402 and the powers conferred upon the Central Government under section 408, inasmuch as on the powers of the court no restrictions or limitations of any kind have been put while restrictions and limitations have been placed on the Government's power to grant relief in cases of oppression and mismanagement. Even the manner in which, the extent to which and the period for which relief could be granted by the Government has been indicated and on account of this the provisions of section 408 would necessarily come in conflict with the other provisions of the Act dealing with corporate management including section 255 and, therefore, a non-obstante clause was used at the commencement of section 408. We are, therefore, inclined to take the view that the absence of a non-obstante clause in sections 397, 398 and 402 does not lead to the inference suggested by Mr. Sen. Moreover, as we have already indicated, there is neither a non-obstante clause contained in any of these sections nor is there language to indicate that the court's powers under these sections are to be exercised subject to any of the other provisions of the Act. In such a situation the ambit of the court's powers must be determined by the scheme of Part VI in which all the concerned sections appear, the language employed in these relevant sections and the object sought to be achieved by them and in this context it would be useful to refer to the rule of construction enunciated in Maxwell on the Interpretation of Statute, 12th edition, page 45, to which our attention was invited by Mr. Phadke. The relevant rule of construction has been stated Page 54 of 88 C/SCA/2179/2014 CAV JUDGMENT thus :
"If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for the purpose of bringing about an effective result."
The above passage is based on the judgment of Viscount Simon L.C. in the case of Nokes v. Doncaster Amalgamated Collieries Ltd. [1940] AC 1014 (HL) and, in our view, the rule could be applied to the instant case. Having regard to the admitted position that there is neither a non-obstante clause contained in any of these relevant sections nor is there anything to indicate that the court's powers under these sections are to be exercised subject to any of the other provisions of the Act, there is a choice available to the court and having regard to the manifest purpose of the legislation, it will be difficult to accept the contention of Mr. Sen that the narrower construction of these sections leading to curtailment of owners conferred upon the court should be adopted simply because the provisions do not contain any non-obstante clause; instead we are inclined to adopt a broader construction, inasmuch as such construction would have the effect of achieving the desired result.
40. The ambit, intent and object of Sections 397, 398 and 402 of the Act considered and explained by Bombay High Court go to show that the powers under Sections 397, 398 and 402 are special and exclusive which are presently available to the CLB and they are not at all intended to be exercised by ordinary civil Court.
40.1. In the case of Incable Net (Andhra) Limited (supra), Hon'ble Supreme Court in the facts of the case held that the complaint was as regards breach of the contract and the party alleging oppression and mismanagement was party to the contract. The said decision shall have no application to the facts of the present case.
41. Then the question is whether arbitrator is competent to decide the matter involved in the company petition filed under Sections 397 and 398 of the Act.
42. Under the scheme of Sections 397, 398 read with Section 402 Page 55 of 88 C/SCA/2179/2014 CAV JUDGMENT of the Act, which by itself is complete Code as observed in the case of Cosmosteels Private Ltd. (supra) and in the case of Kamal Kumar Dutta (supra), if the petition is filed alleging oppressive, unfair and prejudicial conduct of majority with particulars referable to some evidence, the CLB, having exclusive powers for such matter, is under obligation to examine the evidence and then to decide whether the complainant/ member is successful in bringing home the charges of oppressive, unfair and prejudicial conduct of majority. At the conclusion on determination of such petition, even if the CLB finds that the complainant/ member has failed to bring home the above such charges, and still it is of the opinion that the company's affairs are conducted in a manner prejudicial to the public interest or to the interest of company or to any other member, it is not powerless to pass appropriate orders and to take measures contemplated under Section 402 of the Act as held by Hon'ble Supreme Court in the case of M.S.D.C. Radharamanan (supra) in para 15,20 to 23 and 41, which read as under:-
15. Ordinarily, therefore, in a case where a case of oppression has been made a ground for the purpose of invoking the jurisdiction of the Board in terms of Sections 397 and 398 of the Act, a finding of fact to that effect would be necessary to be arrived out. But, the jurisdiction of the Company Law Board to pass any other or further order in the interest of the company, if it is of the opinion, that the same would protect the interest of the company, it would not be powerless. The jurisdiction of the Company Law Board in that regard must be held to be existing having regard to the aforementioned provisions.
20. It is true that observations in Harmer's case was held to be applicable in a case falling within the purview of Section 397 of the Act but the statement of law that it was not enough that only a just and equitable case for winding up of the company should be made out but it must also be found that conduct of the majority shareholders was oppressive to the minority members, cannot be said to be exhaustive.
21. The question came up for consideration yet again before a three judge Bench of this Court in Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd. : (1981) 3 SCC 333 wherein Chandrachud, C.J. upon considering a large number of decisions of this Court as also the English Page 56 of 88 C/SCA/2179/2014 CAV JUDGMENT Courts including S.P. Jain and Harmer Ltd. (supra) categorically held :-
"172. Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of May 2 were held in accordance with law."
22. The provisions of the Act vis-a-vis the jurisdiction of the Company Law Board must be considered having regard to the complex situation(s) which may arise in the cases before it. No hard and fast rule can be laid down. There cannot be any doubt whatsoever that the acts of omission and commission on the part of a member of a company should be qua the management of the company, but it is difficult to accept the proposition that the just and equitable test, which should be held to be applicable in a case for winding up of a company, is totally outside the purview of Section 397 of the Act. The function of a Company Law Board in such matters is first to see as to how the interest of the company vis-a-vis its shareholders can be safeguarded.The Company Law Board must also make an endeavour to find out as to whether an order of winding up will serve the interest of the company or subvert the same. Further, if an application is filed under Section 433 of the Act or Section 397 and/or 398 thereof, an order of winding up may be passed, but as noticed hereinbefore, the Company Law Board in a winding up application may refuse to do so, if any other remedy is available. The Company Law Board may not shut its doors only on sheer technicality even if it is found as of fact that unless the jurisdiction under Section 402 of the Act is exercised, there will be a complete mismanagement in regard to the affairs of the company.
23. Sections 397 and 398 of the Act empower the Company Law Board to remove oppression and mismanagement. If the consequences of refusal to exercise jurisdiction would lead to a total chaos or mismanagement of the company, would still the Company Law Board be powerless to pass appropriate orders is the question. If a literal interpretation to the provisions of Section 397 or 398 is taken recourse to, may be that would be the consequence. But jurisdiction of the Company Law Board having been couched in wide terms and as diverse reliefs can be granted by it to keep the company functioning; is it not desirable to pass an order which for all intent and purport would be beneficial to the company itself and the majority of the members? A court of law can hardly satisfy all the litigants before it. This, however, by itself would not mean that the Company Law Board would refuse to exercise its jurisdiction, although the Page 57 of 88 C/SCA/2179/2014 CAV JUDGMENT statute confers such a power on it.
41. This Court noticed that although the Indian Companies Act is modelled on the English Companies Act, the Indian Law is developing on its own lines. It was opined that the principle of 'just and equitable clause' is essentially equitable consideration and may, in a given case, be superimposed on law. The Court in arriving at the said conclusion considered the decision of House of Lords in Re : Ebrahimi and Westbourne Galleries Ltd. : 1973 AC 360 whereupon strong reliance has been placed by Mr. Sundaram as also in Re:
Yenidje Tobacco Co. Ltd. : (1916) 2 Ch 412 amongst others. What is important is not the interest of the applicant but the interest of the shareholders of the company as a whole. If such a principle is applied in a case of winding up of a company, we do not see any reason not to invoke the said principle in a case under Section 397 of the Act, subject of course to the applicability of the well known judicial safeguards.
The above powers are available only with the CLB and not with the arbitrator.
43. However, learned senior advocate Mr. Shelat submitted that if the arbitration agreement falls within Section 7 of the Arbitration Act, there is no bar in referring the parties to the arbitration if it is found that the matter before the CLB is the subject of arbitration agreement and and the parties are treated as common. Section 7 of the Arbitration Act reads as under:-
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 Page 58 of 88 C/SCA/2179/2014 CAV JUDGMENT of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of 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.
44. Sub-section (1) of Section 7 of the Arbitration Act provides that the agreement whereby the parties have agreed to submit to arbitration their disputes which have arisen or to arise between them in respect of define legal relationship whether the contractual or not, is an arbitration agreement. The question, however is whether arbitrator is competent to decide the dispute though arising out of legal relationship but has given rise to a matter, the jurisdiction to deal with and decide it is exclusively conferred upon a special forum especially a public forum under the Statute even if it is found that the parties are common.
44.1. In the case of Haryana Telecom Ltd. (supra), the Hon'ble Supreme Court has held and observed in para 4 and 5 as under:-
4. Sub-section (1) of Section 8 provides that where the judicial authority before whom an action is brought in a matter, will refer the parties to arbitration the said matter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can be referred to the arbitrator is only that dispute or matter which the arbitrator is competent or empowered to decide.
5. The claim in a petition for winding up is not for money. The petition filed under the Companies Act would be to the effect, in a matter like this, that the company has become commercially insolvent and, therefore, should be wound up.
The power to order winding up of a company is contained under the Companies Act and is conferred on the Court.An arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company. The matter which is pending before the High Court in which the application was filed by the petitioner herein was relating to winding up of the company. That could obviously not be referred to the arbitration and, Page 59 of 88 C/SCA/2179/2014 CAV JUDGMENT therefore, the High Court, in our opinion was right in rejecting the application.
44.2. In the case of Hindustan Petroleum Corpon. Ltd. (supra), the Hon'ble Supreme Court has held that in cases where there is an arbitration clause in agreement, it is obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer to the dispute to an arbitrator. The Court further observed that once existence of arbitration clause is admitted, it is mandatory for the civil court to refer the dispute to the arbitrator.
However, in this very judgment, the Hon'ble Supreme Court found from the facts of the case that neither the petitioner, i.e. Hindustan Petroleum Corporation Ltd. was exercising the power of search and seizure conferred on a competent authority under the Weights and Measures (Enforcement) Act, 1985 nor the dealership agreement contemplated an arbitrator to exercise power of a criminal court while arbitrating on a dispute which had arisen between the contractor and parties. Therefore, in the facts of the case, the Hon'ble Supreme Court found that the powers conferred under the agreement did not in any manner conflict with the statutory power under the Act of 1985. The power exercised by the petitioner Hindustan Petroleum Corporation Ltd. was purely contractual power under the agreement and not a statutory one under the Act of 1985. Therefore, no absolute law is laid down that in every case wherever there is a clause for arbitration, the parties are to be mandatorily referred to arbitration irrespective of satisfying the pre-requisites of Section 8 of the Arbitration Act and without considering the competence of the arbitrator to decide the matter in dispute.
44.3. In the case of Rashtriya Ispat Nigam Ltd. (supra), the Hon'ble Supreme Court has in the facts of the case found that the existence Page 60 of 88 C/SCA/2179/2014 CAV JUDGMENT of a valid agreements stood admitted. There could not be any dispute that the matter relating to termination of contract would be a dispute arising out of a contract and arbitration agreement contained in Clause 44 of the contract would be squarely attracted. Once the condition precedents contained in the said proceedings were satisfied, the judicial authority was statutorily mandated to refer the matter to arbitration. It is further observed that what is necessary to be looked into would be as to whether the subject matter of dispute is covered by an arbitration agreement or not. The Hon'ble Supreme Court found in the facts of the case that the subject matter of the dispute was covered by arbitration agreement and distinguished the case of Sukanya Holdings (P) Ltd. Vs. Jasyesh H. Pandya reported in (2003)5 SCC 531 as not applicable to the facts of the case.
44.4. In the case of Agri Gold Exims Ltd. (supra), the Hon'ble Supreme Court has held and observed in para 22 as under:-
22. Section 8 of the 1996 Act is peremptory in nature. In a case where there exists an arbitration agreement, the Court is under obligation to refer the parties to arbitration in terms of the arbitration agreement.(See Hindustan Petroleum Corpn.
Ltd. v. Pinkcity Midway Petroleums (2003) 6 SCC 503 and Rashtriya Ispat Nigam Limited (supra)). No issue, therefore, would remain to be decided in a suit. Existence of arbitration agreement is not disputed. The High Court, therefore, in our opinion, was right in referring the dispute between the parties to arbitration.
44.5. In the case of Branch Manager, Magma Leasing and Finance Limited and Another (supra), the Hon'ble Supreme Court has held and observed in para 18 that Section 8 of the Arbitration Act is in the form of legislative command to the court and once prerequisite conditions of Section 8 are satisfied, the Court must refer the parties to arbitration. It is further observed that as a matter of fact, on fulfillment of the conditions, no option is left to the court and the court has to refer the parties to arbitration. In the said case, the question was as to whether the arbitration agreement survived for the purpose of resolution of the disputes arising under or in Page 61 of 88 C/SCA/2179/2014 CAV JUDGMENT connection with the contract even if its performance had come to an end on account of termination due to breach. In the facts of the case, the Hon'ble Supreme Court found that Clause 22 of the hire purchase agreement that provides for arbitration has been couched in the widest possible terms as can well be imagined. It embraces all the disputes, differences, claims and questions between the parties arising out of the said agreement or in any way relating thereto. It was thus found that the arbitration clause No.22 survived for the purpose of their resolution although the contract had come to an end on account of its termination.
Thus, it was found as a matter of fact that prerequisite conditions of Section 8 were fully satisfied. Hon'ble Supreme Court has not laid down any absolute law that once there is an arbitration agreement, the court is not required to consider the competence of arbitrator for the matter to be decided and whether prerequisites of Section 8 of the Arbitration Act are satisfied or not.
44.6. In the case of Tapan Kumar Paul (supra), decided under the Arbitration Act of 1940, especially para 9 thereof, it is held that there is no bar in referring the dispute to the arbitration. However, as observed in the said paragraph, the Court agreed with the submission of learned counsel that the powers under Section 397 and allied sections of the Act were exclusively given to the court on the ground of public policy and could not be delegated to the private forum. But, while examining the award made by the arbitrator, the court in the facts of the case observed that the arbitrator did not seek to exercise that the Court enjoyed exclusive under the provisions of the Act.
44.7. In the case of Gurnir Singh Gill (supra), the Delhi High Court has held and observed on page 208 to 209 as under:-
"Shri Saharya, appearing for the respondents, next contended that, if Shri Deshpande had been appointed as an arbitrator by the order if May, 22, 1985, such appointment would be invalid as, according to him, disputes arising in a Page 62 of 88 C/SCA/2179/2014 CAV JUDGMENT petition under sections 397 and 398 of the Companies Act cannot be referred to arbitration. He also submitted that the court's power to pass orders under sections 397, 398, 402 and 403 was very wide and plenary and cannot be fettered by the order passed on May 22, 1985. He relied, in this context, on the decisions reported as Surendra Kumar Dhawan v. Vir (R.)[1977] 47 Comp Case 276 (Delhi), Manavendra Chitnis v. Leela Chitnis studios P. Ltd. [1985] 58 Comp Case 113 (Bom) and O.P. Gupta v. Shiv General Finance (P.) Ltd. [1976] DLT 49 ; [1977] 47 Comp Case 279 (Delhi). I am unable to accept the contention of learned counsel. The decisions cited by him do not lay down directly the wide proposition that disputes arising in proceedings under section 397 and section 398 cannot be referred to arbitration though there are observations which can be read out of context to suggest that they do. As pointed out by counsel for the petitioner, these were cases under section 34 of the Arbitration Act and all that the court did was to refuse stay of the proceedings in a section 397 and 398 petition sought for on the ground that the articles of the company provided for reference of disputes to arbitration. The power to stay court proceedings because of the existence of an arbitration clause which has been, or can be, invoked or, for that matter of the existence of an award, is a matter of judicial discretion. The court may well refuse to grant stay of the petition under sections 397 and 398 which the parties have sought, and the court can grant much wider and more appropriate relief. But this is not the same as saying that when a court is seized of proceedings under sections 397 and 398, its powers to not extend to the reference of some or all the points in controversy to arbitration particularly when, in the course of the proceedings, the parties agree to such a course. As pointed out by Kapur J. in the Delhi decisions cited, the scope of sections 21 and 34 of the Arbitration Act are completely different. While a court may not, and indeed will not, agree to stultify its powers under sections 397 to 403 merely because parties can have, or have had, recourse to arbitration, there is no reason why the court's very wide amplitude of powers under sections 397 to 403 should be read down to prohibit the reference by it, of some or all of the points in dispute before it, to arbitration.
Its power cannot be less in this regard than those of a civil court trying a suit between the parties.
In the facts of the case, the Court observed as under:-
"These are, therefore, civil proceedings before a court and issues arising therefrom can be referred to arbitration. Nor is there anything in the nature of the proceedings here that precludes a reference to arbitration: These are not proceedings in rem, like insolvency proceedings, nor do they involve public rights, as in the case of a suit under section 92 Page 63 of 88 C/SCA/2179/2014 CAV JUDGMENT of the Code of Civil Procedure. The disputes raised are purely inter parties and do not affect the rights of strangers to the proceedings."
44.8. In the case of Booz Allen and Hamilton Inc. (supra), the Hon'ble Supreme Court while comparing the scope and extent of Section 8 with Section 11 has held and observed in para 19, 32,33,35,36,37 and 38 as under:-
19. Where a suit is filed by one of the parties to an arbitration agreement against the other parties to the arbitration agreement, and if the defendants file an application under section 8 stating that the parties should be referred to arbitration, the court (judicial authority) will have to decide:
(i) whether there is an arbitration agreement among the parties;
(ii) whether all parties to the suit are parties to the arbitration agreement;
(iii) whether the disputes which are the subject-matter of the suit fall within the scope of arbitration agreement;
(iv) whether the defendant had applied under section 8 of the Act before submitting his first statement on the substance of the dispute; and
(v) whether the reliefs sought in the suit are those that can be adjudicated and granted in an arbitration.
32. The nature and scope of issues arising for consideration in an application under section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of 'arbitrability' or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under section 34 of the Act, relying upon sub-section 2(b)(i) of that section.
33. But where the issue of 'arbitrability' arises in the context of an application under section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Page 64 of 88 C/SCA/2179/2014 CAV JUDGMENT Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.
35. Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.
36. The well recognized examples of non-arbitrable disputes are : (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.
37. xx
38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable.
Page 65 of 88 C/SCA/2179/2014 CAV JUDGMENT45. Thus, the court/ judicial authority should satisfy itself on the aspects narrated in para 19 of the above judgment before referring the parties to arbitration under Section 8 of the Arbitration Act. If the dispute which is the subject matter of suit or proceedings before the judicial authority, does not fall within the scope of the arbitration agreement and if the reliefs sought in such proceedings cannot be adjudicated or granted in the arbitration proceedings, the parties cannot be referred to arbitration even if there exists an arbitration agreement between the parties. The Hon'ble Supreme Court has observed that the Arbitral Tribunal is a private fora chosen voluntarily by the parties to the dispute in place of courts and the tribunals are public fora constituted under the laws of the country. Therefore, every civil or commercial dispute, either contractual or non-contractual which can be decided by a court, is in principle capable of being adjudicated and resolved by the arbitration unless the jurisdiction of the Arbitral Tribunal is excluded either expressly or by necessary implications. It is further observed that adjudication of certain categories of proceedings are reserved by legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/ dispute is inarbitrable, the court where a suit is pending (judicial authority) will refuse to refer the parties to arbitration, under Section 8 of the Arbitration Act, even if the parties have agreed upon arbitration as the forum for settlement of such disputes. The well recognized examples of non-arbitrable disputes are mentioned in para 36 of the judgment. However, this may not be taken as exhaustive list. Therefore, in respect of the matter brought before the court or the judicial authority, if it is found that the adjudication of such matter is reserved for public fora by legislature and excluded by necessary implication from the purview of private fora, the parties cannot be referred in respect of such dispute to arbitration under Section 8 of Page 66 of 88 C/SCA/2179/2014 CAV JUDGMENT the Arbitration Act. It is required to be noted that the law mandates in Section 400 of the Act to give notice of every application made under Sections 397 and 398 of the Act to the Central Government and also mandates the CLB to take into consideration the representation if any made by the Central Government before passing any final order. Section 402 of the Act gives additional powers to the CLB which as stated in the section itself is without prejudice to the generality of the powers of the CLB under section 397 or 398, to make any order under either Section to provide for various measures stated therein. Such powers under Sections 397, 398 read with Section 402 of the Act are conferred only upon the CLB by the Statute and not available to the arbitrator. The CLB is also conferred powers to implead other parties under Section 405 of the Act. Section 539 to 544 of the Act as regards penalty, liability in connection with the affairs of a company apply to the proceedings under Section 397 or 398 of the Act. The above such legal procedure and the powers are beyond the purview of arbitration. The arbitration is forum chosen by the parties to resolve the dispute when arise between them under or in connection with the agreement. Therefore, the arbitrator is to exercise his jurisdiction within the terms of reference in respect of the dispute arisen out of or in connection with the agreement between the parties and not competent to decide anything beyond and de hors the reference and it will render the legislative intention nugatory if one reads the powers under Sections 397, 398 and 402 of the Act within the competence of the arbitrator.
45.1. In the case of State of Goa Vs. Praveen Enterprises reported in (2012)12 SCC 581, the Hon'ble Supreme Court while explaining the scope of Sections 8 and 11 of the Arbitration Act as well as Section 89 of the Code of Civil Procedure has held and observed in para 13 and 39 as under:-
13. 'Reference to arbitration' can be in respect of reference of disputes between the parties to arbitration, or may simply mean referring the parties to arbitration. Section 8 of the Act is an example of referring the parties to arbitration. While Page 67 of 88 C/SCA/2179/2014 CAV JUDGMENT section 11 contemplates appointment of arbitrator [vide sub-
sections (4), (5) and (9)] or taking necessary measure as per the appointment procedure under the arbitration agreement [vide sub-section (6)], section 8 of the Act does not provide for appointment of an arbitrator, nor referring of any disputes to arbitration, but merely requires the judicial authority before whom an action is brought in a matter in regard to which there is an arbitration agreement, to refer the parties to arbitration. When the judicial authority finds that the subject-matter of the suit is covered by a valid arbitration agreement between the parties to the suit, it will refer the parties to arbitration, by refusing to decide the action brought before it and leaving it to the parties to have recourse to their remedies by arbitration. When such an order is made, parties may either agree upon an arbitrator and refer their disputes to him, or failing agreement, file an application under section 11 of the Act for appointment of an arbitrator. The judicial authority 'referring the parties to arbitration' under section 8 of the Act, has no power to appoint an arbitrator. It may, however, record the consent of parties to appoint an agreed arbitrator.
39. Reliance was placed upon certain observations in the decision of the House of Lords in Heyman v. Darwins Ltd. 1942 AC 356. We extract below the paragraph containing the relied upon observations :
"The law permits the parties to a contract to include in it as one of its terms an agreement to refer to arbitration disputes which may arise in connection with it, and the court of England enforce such a reference by staying legal proceedings in respect of any matter agreed to be referred "if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the submission."
Arbitration Act, 1889, section4. Where proceedings at law are instituted by one of the parties to a contract containing an arbitration clause and the other party, founding on the clause, applies for a stay, the first thing to be ascertained is the precise nature of the dispute which has arisen. The next question is whether the dispute is one which falls within the terms of the arbitration clause.Then sometimes the question is raised whether the arbitration clause is still effective or whether something has happened to render it no longer operative. Finally, the nature of the dispute being ascertained, it having been held to fall within the terms of the arbitration clause, and the clause having been found to be still effective, there remains for the court the question whether there is any sufficient reason why the matter in dispute should not be referred to arbitration."
46. It is a different matter that even when a party has a complaint about conducting the affairs of the company in a manner oppressive Page 68 of 88 C/SCA/2179/2014 CAV JUDGMENT to him or prejudicial to the interest of the company, he may not take recourse to the proceedings under Sections 397 and 398 of the Act and may choose to ventilate his grievance to recoup his personal loss by resorting to civil remedy before the civil court because ultimately he is the dominus litis and he can select his remedy. However, simply because a party selects to go before the civil court with a prayer to compensate his loss cannot be a ground to suggest that the civil court or the arbitrator has jurisdiction to decide the matter which squarely falls within the domain of CLB under Sections 397 and 398 of the Act. In the case Vijay Kumar (supra), the Hon'ble Supreme Court has held and observed in para 10 and 11 as under:-
"10. ...The effect of the decision in Frank Anthony's case (supra) is that the statutory rights and privileges of Chapter IV have been extended to the employees covered by Chapter V and, therefore, the contractual rights have to be judged in the background of statutory rights. In view of what has been stated in Frank Anthony's case (supra) the very nature of employment has undergone a transformation and services of the employees in minorities unaided schools governed under Chapter V are no longer contractual in nature but they are statutory. The qualifications, leaves, salaries, age of retirement, pension, dismissal, removal, reduction in rank, suspension and other conditions of service are to be governed exclusively under the statutory regime provided in Chapter IV. The Tribunal constituted under Section 11 is the forum provided for enforcing some of these rights. In Premier Automobiles Ltd. v. Kamlekar Shantaram Wadke of Bombay and Ors. (1976 (1) SCC 496), it has been observed that if a statute confers a right and in the same breath provides for a remedy for enforcement of such right, the remedy provided by the statute is an exclusive one. If an employee seeks to enforce rights and obligations created under Chapter IV, a remedy is available to him to get an adjudication in the manner provided in Chapter IV by the prescribed forum i.e. the Tribunal. That being so, the Tribunal cannot and in fact has no power and jurisdiction to hear the appeal on merits and only way is to ask the parties to go for arbitration.
11. According to learned counsel for the appellant though there may be two remedies available to the dismissed employee, that is, one the appeal and the other before the arbitrator, his stand was that when one of the parties i.e. the employer wants a particular forum for adjudication there cannot be a compulsion for him to go before the forum chosen by the other party. This argument in our view is clearly without Page 69 of 88 C/SCA/2179/2014 CAV JUDGMENT substance. Even if there are plural or multiple remedies available, the principle of dominus litis has clear application. In Dhannalal v. Kalawathi Bai (2002 (6) SCC 16) this Court relying on Ganga Bai v. Vijay Kumar (1974 (2) SCC 393) held as under :
"There is an inherent right in every person to bring a suit of a civil nature and unless the suit is barred by statute, one may, at one's peril, bring a suit of one's choice. It is no answer to a suit, howsoever frivolous the claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit.
47. Having thus considered the widths and scope of jurisdiction of arbitrator vis-a-vis the special and exclusive jurisdiction conferred upon the CLB under Sections 397, 398 read with Section 402 of the Act, the matter in the company petition now needs to be glanced at to deal with the other contentions.
48. Though it may appear that there were disputes and differences only between two brothers, i.e. respondent No.3 who happens to be the Managing Director of respondent No.2 (MCL) and the respondent No.7 who happens to be the Chairman of respondent No.6(SEL) and such disputes were put to rest by MoU dated 9.7.2000, which is stated to have rectified the earlier EPC contracts and other agreements, however the allegations in the company petition as a whole are as regards the manner of majority directors conducting the affairs of the company oppressive to the minority group, prejudicial to the interest of the company and the public interest. The allegations in respect of such complaint are found stated in para 6.17 to 6.17 of the company petition. They are in relation to siphoning of the company's fund, not involving the director nominated by minority into the affairs of the company for taking major decisions, not serving agenda notice for the Board meetings, execution of service agreement, management agreement etc. even after MoU was entered into without knowledge of the minority. Based on such allegations, more than 20 reliefs are claimed in the company petition, which include to declare the MoU dated 9.7.2010 not binding to the company, refund Page 70 of 88 C/SCA/2179/2014 CAV JUDGMENT of Rs.200 crores to the company alleged to have been siphoned away by the Sadbhav Group, including their nominated directors, refund of Rs.91.50 crores to the company alleged to have been siphoned away by Sadbhav Group, including their nominated directors, to quash the service agreement dated 1.3.2010 and to refund the amount of Rs.17 crores to the company allegedly siphoned away under the service agreement, to quash the service agreement dated 22.9.2010, to refund the amount to the company received by Sadbhav Group, including majority directors, to refund Rs.1.85 crores siphoned away under the management service agreement dated 21.5.2012, to quash the Board meetings and the resolution passed in the Board meeting dated 4.3.2010 for approving the execution and operation of maintenance contract, to quash EPC contract dated 30.4.2010 executed in favour of one KNR Construction Company, to quash the other Board meetings and resolutions passed in the meeting of the company and to direct the company to return the amount of Rs.16,91,88,000/- deposited by MCL under protest vide its letter dated 7.6.2013 etc.
49. If above are the nature of reliefs prayed on the basis of above- referred allegations in the company petition, law even if internationally developed to favour and lean towards arbitration, referring the parties to arbitration under Section 8 of the Arbitration Act would work against the legislative wisdom of conferring exclusive jurisdiction for the matter under Sections 397 and 398 of the Act to the CLB.
50. In the case of 20th Century Finance Corporation Ltd. (supra), the grievance was that the respondent had not adhered to clauses of sponsorship agreement. The right to get memorandum and articles of association amended had accrued to the appellant. In such facts, it was held that the controversy could not have been decided by CLB under Sections 397 and 398 of the Act. This judgment will have no application to the facts of the case.
Page 71 of 88 C/SCA/2179/2014 CAV JUDGMENT51. However, it was submitted by learned senior advocate Mr. Shelat that in view of the arbitration clause contained in SHA, which is inter-se connected with other agreements between the parties, the arbitrator should be first allowed to examine whether the matter before the CLB could be resolved in terms of the agreement or not. Mr. Shelat submitted that even part of the matter where it concerns about breach of the promises, assurances and agreements between the parties could be referred to the arbitrator in terms of the arbitration agreement. Such contention is raised on the basis of Fulham's case (supra).
52. In Fulham's case, the petition was filed by Fulham Football Club Limited (Fulham), a member of the Football Association Premier League Limited (FAPL) (the company) alleging that its Chairman acted as an unauthorized agent in breach of Football Agents Regulation which unfairly prejudiced the interest of Fulham. The petition was filed under Section 994 of the English Companies Act, 2006, seeking relief of injunction or an order that the defendant should cease to be a Chairman of FAPL as well as such other relief "as the Court thinks fit". Section 994 reads as under:-
"994. Petition by company member (1) A member of a company may apply to the court by petition for an order under this Part on the ground--
(a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
(2) The provisions of this Part apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law as they apply to a member of a company.
(3) In this section, and so far as applicable for the purposes of Page 72 of 88 C/SCA/2179/2014 CAV JUDGMENT this section in the other provisions of this Part, "company"
means--
(a) a company within the meaning of this Act, or
(b) a company that is not such a company but is a statutory water company within the meaning of the Statutory Water Companies Act 1991 (c. 58).
The Trial Court granted stay of proceeding, which the Appellate Court confirmed and the plaintiff unsuccessfully applied to further appeal. The question arose as to whether dispute could be referred to the arbitrator or not. Considering the nature of dispute, the Court observed that determination of whether there has been unfair prejudice consisting of the breach of an agreement or some other unconscionable behaviour is plainly capable of being decided by an arbitrator and it is common ground that an arbitral tribunal constituted under the FAPL or the FA Rules would have the power to grant the specific relief sought by Fulham in its Section 994 petition. It is observed that a dispute between members of a company or between shareholders and the board about alleged breaches of the articles of association or a shareholders' agreement is essentially a contractual dispute which does not necessarily engage the rights of creditors or impinge on any statutory safeguards imposed for the benefit of third parties. In that case, the only issue between the parties is whether the Chairman had acted in breach of the FA and FAPL Rules in relation to the transfer of a Premier League player. It was observed that the Court was not concerned with the possible winding-up of the company and there was nothing in the scheme of these provisions which made the resolution of the underlying dispute inherently unsuitable for determination by arbitration on grounds of public policy. The only restriction placed upon the arbitrator was in respect of the kind of relief which could be granted. It was observed that the agreement could not arrogate to the arbitrator the question of whether a winding-up order should be made. That would remain a matter for the court in any subsequent proceedings. But the Page 73 of 88 C/SCA/2179/2014 CAV JUDGMENT arbitrator could legitimately decide whether the complaint of unfair prejudice was made out and whether it would be appropriate for winding-up proceedings to take place or whether the complainant should be limited to some lesser remedy. It would only be in circumstances where the arbitrator concluded that winding-up proceedings would be justified that a shareholder would then be entitled to present a petition under Section 122(1)(g).
53. However, Singapore Court while dealing with Silica Investors (supra) held that the view in Fulham was limited to the nature of dispute therein and cannot be read as a rule of general application. The Court observed that the decision was probably correct on its unique facts with the issue being whether the chairman acted in breach of the Football Association and FAPL rules and the remedy sought being to prevent the chairman from acting in a certain manner or termination of his chairmanship. The learned Judge thus did not read the ruling in Fulham as necessarily endorsing a rule of general application.
53.1. It is required to be noted that in the Fulham case, the issue was decided under Section 994 which takes care of the claim as regards conducting the affairs of the company in a manner prejudicial to the interest of members like the minority oppression claim. Similarly, the Singapore Court examined the issue about the arbitrability of the dispute in the context of minority oppression claims under Section 216 of the Companies Act which read as under:-
Personal remedies in cases of oppression or injustice
216.--(1) Any member or holder of a debenture of a company ... may apply to the Court for an order under this section on the ground --
(a) that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or holders of debentures including himself or in disregard of his or their interests as members, shareholders or holders of debentures of the company; or Page 74 of 88 C/SCA/2179/2014 CAV JUDGMENT
(b) that some act of the company has been done or is threatened or that some resolution of the members, holders of debentures or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or holders of debentures (including himself).
(2) If on such application the Court is of the opinion that either of such grounds is established the Court may, with a view to bringing to an end or remedying the matters complained of, make such order as it thinks fit and, without prejudice to the generality of the foregoing, the order may --
(a) direct or prohibit any act or cancel or vary any transaction or resolution;
(b) regulate the conduct of the affairs of the company in future;
(c) authorise civil proceedings to be brought in the name of or on behalf of the company by such person or persons and on such terms as the Court may direct;
(d) provide for the purchase of the shares or debentures of the company by other members or holders of debentures of the company or by the company itself;
(e) in the case of a purchase of shares by the company provide for a reduction accordingly of the company's capital; or
(f) provide that the company be wound up.
Following are the observations made and difficulties pointed out by Singapore Court for expressing inability to agree with the view expressed in Fulham in para 128 to 134 and 138 to 142, which read as under:-
128. One of the key difficulties surrounding the arbitrability of minority oppression claims is the non-availability of winding up and the other remedies that only a Court can make. This has been highlighted by academic commentators. In Michael J Duffy, "Shareholders Agreements and Shareholders' Remedies: Contract Versus Statute?" (2008) 20 Bond Law Review 1, the author, having examined both Skyer and ACD Tridon, noted (at p 11) that:
... commercial arbitration will be allowable for inter partes relief though it may become problematic when Page 75 of 88 C/SCA/2179/2014 CAV JUDGMENT the relief involves winding up action. In terms of the common remedies (as discussed below) it thus seems that to the extent that an oppression action seeks winding up as a form of relief there may be doubt as to whether the matter can, in the absence of mutual consent, be kept out of the courts ... It seems to follow also that a dispute that was wider than that governed by the shareholders agreement and/or which involved other parties (such as the company) would not be required to be dealt with under the commercial arbitration clause.
129. In Prudent Anticipation, the author distilled some common threads from the cases that addressed the arbitrability of minority oppression claims (at p 324):
First, where the rights asserted will directly affect third parties, i.e. persons who are not parties to the arbitration agreement, it may prove difficult to convince a court to stay proceedings before it in favour of arbitration. The courts in those circumstances seem to have a fairly strong ground upon which to base a holding that the matter is not capable of settlement by arbitration.
Secondly, public shareholder claims are particularly susceptible to arguments that it is contrary to the public interest that matters be referred to arbitration. The interaction between large groups of shareholders, directors and companies is complex. Legal rules have been developed to confine and mould those relationships in fairly invasive respects, such as the process requirements associated with derivative and class actions. Courts will likely find it difficult to accept that informal arbitration procedures, which may rely heavily on ad hoc decisions by the arbitral tribunal, can satisfactorily handle these relationships. They are likely to be comforted greatly if a party which seeks a stay in favour of arbitration can explain to the court, with reference to pre-existing arbitration rules that will govern the proceedings, how the issues will be addressed.
Finally, the views of courts as to what are proper subjects for arbitration change over time... As more such arbitrations take place in these permissive regimes, and as arbitration bodies develop greater expertise and procedural certainty in these areas, the concerns that courts may have are likely to become less compelling.
[emphasis added]
130. As against these views, there are academic commentaries from Canada in support of the view that minority oppression claims should be arbitrable. In Byron Shaw, "The Arbitrability Page 76 of 88 C/SCA/2179/2014 CAV JUDGMENT of Oppression Claims" (2011) 69 The Advocate 21, the author argued (at p 26) that:
Where all parties to the oppression claim are privy to the arbitration agreement and the dispute falls within the scope of the arbitration clause, the agreement to arbitrate should be enforced... Requiring parties to adjudicate the 'non- oppression' aspects of their dispute and to return to court seems unnecessary and inconsistent with the principle that a multiplicity of proceedings should be avoided at all costs. There is no apparent reason why an arbitrator should lack competence to make findings of oppression or to award a statutory equitable remedy under the BCA [Business Corporations Act].
131. A similar, albeit more balanced view, was expressed in Rebecca Huang, "Shareholder Dispute: Arbitrator's Power to Grant Statutory Oppression Remedy" (2010) 36 The Advocates' Quarterly 457 at p 468:
... an arbitrator should have as broad as possible of a power to remedy shareholder disputes as long as such disputes are arbitrable and the parties have not expressly excluded statutory oppression remedies from the arbitrator's scope of powers. Court may still retain the narrow residual jurisdiction to intervene where an aggrieved shareholder would be deprived of an ultimate remedy through arbitration.
132. I acknowledge the possibility that if there are only two shareholders in a joint venture company with an arbitration agreement, or where all the shareholders are bound by an arbitration clause, then perhaps a minority oppression claim can be hived off to an arbitral tribunal for it to make findings as to whether there was any oppression. This would be in keeping with the "generous" construction of arbitration clauses laid down by the Court of Appeal in Larsen Oil. In such an instance, the arbitral tribunal would leave the choice of the remedy or appropriate order to the Court. Even then, there is the problem of whether the arbitral tribunal should also recommend what remedy would, in its view, be most appropriate. As I have discussed earlier ([123] above), there is a possibility that the Court may disagree with the arbitral tribunal - can the Court then impose the remedy it considers appropriate with a view to bringing to an end or remedying the matters complained of? There might also be other difficulties, eg, a possible impact or concern about the solvency of the company and the interests of creditors that was not surfaced at the arbitration proceedings. Even if these difficulties are put to one side, what exactly is being sought for the purpose of enforcement if the arbitral tribunal had only made recommendations? For the reasons set out above, I have my doubts if an arbitral tribunal can and Page 77 of 88 C/SCA/2179/2014 CAV JUDGMENT should make a declaration that the claimant is entitled to ask a Court to wind up the company or order a buy-out upon specified terms.
133. The third approach available to the Court, as set out at [121(c)], also has its problems when applied to the present case. Significantly, the Plaintiff and the 2nd Defendant are the only parties who are bound by the Arbitration Clause.
The other defendants, especially the individuals, are implicated in the pleadings as having played a part in oppressing the Plaintiff. In Fulham,Patten LJ opined that the other shareholders could also be heard in the arbitration. That may well be in some cases, but it is equally, if not more likely, possible in such situations that the other shareholders would refuse to do so for tactical reasons (I hasten to emphasise that I make no such finding or nor take such a view on the facts of this case but raise this as a general hypothetical possibility). I doubt if these parties can be compelled to attend as witnesses, be asked to state their case, give their evidence (both documentary and oral) and thereafter be bound by the arbitral award. The arbitration may well proceed with only hearing the parties to the arbitration agreement and on that evidence,the arbitral tribunal has to reach a view and make its award. In the meantime, the Court may wish to exercise its inherent powers of case management and stay proceedings until the arbitral award is made (see Shanghai Construction (Group) General Co. Singapore Branch v Tan Poo Seng [2012] SGHCR 10, citing Reichhold Norway ASA and another v Goldman Sachs International [1999] CLC 486, upheld on appeal, [2000] 1 WLR 173). With the benefit of the award, the Court then proceeds to hear the rest of the parties and the full panoply of evidence. What if, on hearing all the witnesses and evidence, some of which was not placed before the arbitral tribunal, the Court comes to a different conclusion either on its finding of oppression or the recommended remedy? It is settled law in Singapore that the courts do not re-open findings of fact of an arbitral tribunal and they can only set aside or refuse to enforce awards on limited grounds.
134. It is possible for the Court to stay the proceedings for the parties with an arbitration agreement and send them off to arbitration, and at the same time, proceed to hear the other parties who are not bound by the arbitration agreement. This will require the plaintiff to proceed on two fronts or coerce the other parties to join in the arbitration. None of these solutions are satisfactory and at an early stage, the Court is unlikely to be able to assess what each party's approach will be as the dispute unfolds and develops.
138. In the absence of an express statutory provision allowing me to make such orders, I would hesitate to do so. Further, in the absence of a contractual agreement to refer matters to Page 78 of 88 C/SCA/2179/2014 CAV JUDGMENT adjudication by a tribunal other than a Court, the Plaintiff is entitled to avail itself of the Court's processes. Under Singapore law, the referral of matters to an arbitrator is a purely consensual process. There is no power for me to otherwise order that the parts of the dispute not caught by the arbitration clause and those against the other defendants not party to it to also be heard at an arbitration or by the arbitrator as part of the Court's process, as was done in ACD Tridon.
139. A practical solution in the present case will be for the Plaintiff and all of the defendants to agree to submit their disputes to arbitration. All parties will then be before one tribunal and will be bound by that tribunal's decision. The possible complications which I have set out above may still arise thereafter, but they cannot be avoided and will have to be dealt with at the appropriate stage.
140. At the end of the day, despite the numerous and undeniable advantages of arbitration, it has its limitations in the context of minority oppression claims under s 216. A review of the non-exhaustive list of remedies under s 216(2) of the CA will illustrate these limitations. The arbitral tribunal can make findings and award damages or make specific orders in personam and inter partes that are binding on the parties before it to do or abstain from doing something. However, the arbitral tribunal will not have the general power to vary any transaction or resolution under s 216(2)(a) of the CA, a fortiori where it involves third parties, including shareholders who are not party to the arbitration agreement. Also, under s 216(2)(d) of the CA, absent any conferment of jurisdiction or power by the consent of the parties under the terms of reference or by a provision within the arbitration agreement or the articles of association or other agreement between the parties, or some other power by the law of the seat or the governing law, I do not think that an arbitral tribunal has the general power to order one shareholder-party to buy out the other shareholder-party on specific terms. A fortiori if there are other shareholders in the company who are not parties to the arbitration agreement and are therefore not bound by the arbitral award. Similar difficulties can be envisaged in the remedy contemplated by s 216(2)(b) of the CA in making an order regulating the future conduct of the affairs of the company or in s 216(2)(e) of the CA which includes the consequential order of providing a reduction in the company's capital after a compulsory buy-out. These factors militate towards the fourth approach set out in [121(d)] above.
141. In my judgment, the nature of a minority oppression claim and the broad powers of the Court under s 216(2) of the CA would mean that a minority oppression claim is one that may straddle the line between arbitrability and non- arbitrability. It would not be desirable therefore to lay down Page 79 of 88 C/SCA/2179/2014 CAV JUDGMENT a general rule that all minority oppression claims under s 216 of the CA are non-arbitrable. It will depend on all the facts and circumstances of the case. No single factor should be looked at alone. Nor should the remedy or relief asked for assume overriding importance, as that would enable litigants to manipulate the process and evade otherwise binding obligations to refer their disputes to arbitration.
142. That said, except for those cases where all the shareholders are bound by the arbitration agreement, or where there are unique facts like Fulham, and the Court is satisfied that, first, all the relevant parties (including third parties whose interests may be affected) are parties to the arbitration and, secondly, the remedy or relief sought is one that only affects the parties to the arbitration, many if not most of the minority oppression claims under s 216 of the CA claims will be non-arbitrable. This will often be in cases where, eg, there are other shareholders who are not parties to the arbitration, or the arbitral award will directly affect third parties or the general public, or some claims fall within the scope of the arbitration clause and some do not, or there are overtones of insolvency, or the remedy or relief that is sought is one that an arbitral tribunal is unable to make.
54. What appears to be common in Fulham's case and Silica Investors' case (supra), is that it is the nature of dispute which decides the question. However, considering the difficulties pointed out in Silica Investors (supra), it may not be possible to go in line with Fulham. The statutory provisions for minority oppression claim in both the cases are the same. And in the context of such provision, it is observed in Silica Investors (supra) that a minority oppression claim is one that may straddle the line between arbitraribility and non-arbitrability.
55. However, the case before CLB in company petition filed by the respondent Nos.2 to 4 is much more than minority oppression claim. Unlike statutory provision of Section 994 of the English Act and Section 216 of the Companies Act (Singapore), the legislature has conferred powers to safeguard the interest of company itself in Section 398 and for public interest in Section 397 as also in Section 398 of the Act and has given wide powers to CLB in Section 402. Having regard to the nature of the matter in the Company Petition before CLB, there is no question of adopting the course of action Page 80 of 88 C/SCA/2179/2014 CAV JUDGMENT suggested in Fulham as it is not just oppressive complaint but a derivative action too.
56. When the law has much developed in our country in almost all the subjects in the form of statute, we should be rather guided by our own law. It is only in absence of a provision in our statute on a particular subject, we might seek guidance from the law on the subject developed in other countries.
57. Now, the question is whether the matter before CLB is the same subject of arbitration agreement or as to whether there is commonality of parties. It appears that essentially, what is contemplated by the arbitration agreement in Clause 36 is to resolve the disputes between the parties in connection with the agreement, i.e. SHA. Mr. Trivedi as also Mr. Shelat submitted that phrase 'IN CONNECTION WITH THIS AGREEMENT' has got wide connotation and it would encompass and cover any dispute between the parties. They submitted that the agreement would include other agreements, including MoU and transaction document referred in the agreement.
58. Examining various clauses of SHA with MoU, it could be said that the parties have agreed on various terms as regards management of the company, conduct of the business of the company, dealing with shareholdings of the shareholders, financing the business of the company, provision as regards transfer of shares, procedure to be adopted in connection with default events taking place resulting into breach of obligation, agreements, declaration, undertaking, etc. provision to indemnify the damages or losses arising out or in connection with any wrong or false representation made by any party for breach of any of the covenants, agreements, declaration or undertaking made by any party to other parties in terms of the agreement. However, when it comes to referring the parties to arbitration, what is relevant is whether the matter in the nature of complaint before CLB as regards the conduct of majority Page 81 of 88 C/SCA/2179/2014 CAV JUDGMENT group oppressive to minority and prejudicial to the interest of the company as also to the public interest could be said to be a matter of same subject covered by arbitration clause. It is required to be noted that the matter before the CLB is just not a kind of civil dispute concerning the rights of the parties flowing from the terms contained in the agreement but it is about unfair conduct of majority group of conducting the Board meetings without serving the agenda notice to the minority group director, not involving the minority into day-to-day business of the company by majority group, execution of the agreements without knowledge of the minority group and against the interest of the company, siphoning of funds of the company and of grants given to the company by the public institution etc. Therefore, even if the arbitration clause is couched, in such a manner so as to encompass within it all the disputes in connection with the agreement which could be said to be wide enough to include any dispute arising out of or in relation to the agreement, still the matter before the CLB cannot be termed as of the same subject of arbitration agreement. Learned advocate Mr. Trivedi and Mr. Shelat have cited different judgments to point out that the phrase 'IN CONNECTION WITH THE AGREEMENT' is wide enough to cover any dispute arising under, out of and in relation to the agreement and also to point out that such nature of arbitration clause would apply to incidental agreements, however such judgments are not required to be dealt with as the Court is of the view that the matter before the CLB is not of the same subject to the arbitration agreement.
59. As regards commonality of the parties, the CLB has come to the conclusion that neither the company nor the majority directors are parties common to arbitration agreement. The company is a signatory to SHA and reading Clause 36.1.1, one might say that the company is also intended to be included as party to the arbitration agreement as it is provided therein that if the promoters do not reach a solution within a period of 30 (thirty) days from the date of issuing Page 82 of 88 C/SCA/2179/2014 CAV JUDGMENT notice of consultations and negotiations, any Party, who is involved in the dispute, may treat the same as an arbitrable dispute by giving notice to the company and the other parties. But, in the next clause, i.e. clause No.36.1.2, it is provided that if the dispute subsists between any two or more of the Promoters pursuant to Clause 36.1 above, the dispute shall be referred to a sole arbitrator by common consensus of the Promoters, failing which both of the Shareholders group shall have right to appoint one arbitrator each of their own choice. From what is provided in Clause 36.1.2, it clearly appears that the parties to SHA have not contemplated the company to be a party to the arbitration agreement. Similarly, majority directors, i.e. respondent Nos.4 to 8 found as necessary parties to the company petition but not the parties to the arbitration agreement as they are not the signatory to the SHA in their individual capacity as directors of the majority group. The dispute agreed to be referred to arbitration in SHA is between the promoters who are SEL, SIPL and MCL. Though relying on Clause 36.1.2, it was submitted by Mr. Trivedi that both of the shareholder group is given right to appoint one arbitrator on failure of promoters to appoint the sole arbitrator and since majority directors are covered by definition of shareholder group in the SHA and also covered in the definition of associate, the majority group directors, i.e. respondent Nos.4 to 8 in the company petition, are to be construed as parties to the arbitration agreement and can be referred to arbitration. Such argument is not available to he petitioners in view of the fact that the respondent Nos.4 to 8 though represent majority shareholder group on the board of the company, however they are in fiduciary relationship with the company and joined in the company petition in the capacity as directors of the company. They, therefore, cannot belong to any group of shareholders. They cannot be thus considered to be parties to the arbitration agreement.
60. Mr. Trivedi, however submitted that the majority directors are Page 83 of 88 C/SCA/2179/2014 CAV JUDGMENT joined to defeat the arbitration and in absence of majority directors, the reliefs prayed in the company petition could be considered and granted and therefore, even if they are not parties to the arbitration agreement, the matter could be referred to the arbitration. However, such contention cannot be accepted as the action brought before the CLB is not only about conducting the affairs of the company in a manner oppressive to minority group but is also a derivative action. In such action, the majority directors are already held to be necessary parties. In such derivative action, if the reliefs are claimed to hold the directors personally liable for their alleged prejudicial conduct against the interest of the company, they are joined in the company petition for their fiduciary relationship as directors with company and such reliefs cannot be granted in their absence. Since they are not parties to the arbitration agreement, they cannot be referred to arbitration. They therefore, cannot be bound by the result of the arbitration. The Court is, therefore, of the view that the CLB has not committed any error in holding that neither the company nor the respondent Nos.4 to 8 of the company petition are parties common to the arbitration agreement. In view of such conclusion, the arguments raised by both the sides and the judgments relied on the question of issue Estoppel, on the question that since other agreements are connected with joint venture and therefore, the parties to such agreements could be referred to arbitration or they could be said to be claiming through parties to arbitration agreement, are not required to be considered. Similarly, the question about the intention of the parties to relate the dispute to all agreements is also not required to be considered. In such view of the matter, the judgments in the case of Olympus Superstructures Pvt. Ltd. (supra), as also in the case of Chloro Controls India Limited (supra), and in the case of Bialetti Industries (supra) relied on by Mr. Trivedi and Mr. Shelat will be of no help to the petitioners. Similarly, the Court has also not thought it fit to consider other judgments relied on by Mr. Trivedi on commonality of subject matter and the parties.
Page 84 of 88 C/SCA/2179/2014 CAV JUDGMENT61. Consequently, whether by incorporation, the arbitration clause from the main agreement could be read into other agreements is also not required to be considered on the basis of the judgment in the case of M.R. Engineers and Contractors Pvt. Ltd. (supra).
62. However, relying on the judgment in the case of Everest Holding Limited (supra), Mr. Trivedi submitted that in view of the joint venture agreement, reference of part of the matter to the arbitration would not amount to bifurcation of subject matter of the company petition. However, when the Court finds that entire matter before the CLB is not referable to the arbitration, even if the parties are taken to be bound by JVA, it is not permissible to bifurcate the matter and the cause of action for referring the matter to the arbitration.
63. In any case, in the context of Section 8 of the Arbitration Act, as held by the Hon'ble Supreme Court in the case Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya and Another reported in (2003)5 SCC 531, it is not permissible to make reference for part of the matter. In the said case, the Hon'ble Supreme Court has held and observed in para 15 and 16 as under:-
15. The relevant language used in S. 8 is - "in a matter which is the subject matter of an arbitration agreement." Court is required to refer the parties to arbitration. Therefore, the suit should be in respect of "a matter" which the parties have agreed to refer and which comes within the ambit of 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, there is no question of application of S. 8. The words 'a matter' indicates entire subject matter of the suit should be subject to arbitration agreement.
16. The next question which requires consideration is - even if there is no provision for partly referring the dispute 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 the subject matter of the suit or in some cases bifurcation of the suit between parties who Page 85 of 88 C/SCA/2179/2014 CAV JUDGMENT are parties to the arbitration agreement and others is possible. This would be laying 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.
Since 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.
The above-said judgment in the case of Sukanya Holdings (supra) was considered by the Hon'ble Supreme Court in the later decision in the case of Chloro Controls India (P) Ltd. (supra). In the said decision, Hon'ble Supreme Court while examining the correctness of law in Sukanya Holdings (supra), has held and observed in para 132 to 134 as under:-
132. Though rival contentions have been raised before us on the correctness of the judgment of this Court in Sukanya Holdings Pvt. Ltd. (AIR 2003 SC 2252 : 2003 AIR SCW 2209) (supra), Mr. Salve vehemently tried to persuade us to hold that this judgment does not state the correct exposition of law and to that effect it needs to be clarified by this Court in the present case. On the contrary, Mr. Nariman argued that this judgment states the correct law and, in fact, the principles stated should be applied to the present case.
133. The ambit and scope of Section 45 of the 1996 Act, we shall be discussing shortly but at this stage itself, we would make it clear that it is not necessary for us to examine the correctness or otherwise of the judgment in the case of Sukanya (AIR 2003 SC 2252 : 2003 AIR SCW 2209) (supra). This we say for varied reasons.
133.1. Firstly, Sukanya was a judgment of this Court in a case arising under Section 8 Part I of the 1996 Act while the present case relates to Section 45 Part II of the Act. As such that case may have no application to the present case.
133.2. Secondly, in that case the Court was concerned with the disputes of a partnership concern. A suit had been filed for dissolution of partnership firm and accounts also challenging the conveyance deed executed by the partnership firm in favour of one of the parties to the suit. The Court noticing the facts of the case emphasized that where the subject-matter of the suit includes subject-matter for arbitration agreement as well as other disputes, the Court did not refer the matter to arbitration Page 86 of 88 C/SCA/2179/2014 CAV JUDGMENT in terms of Section 8 of the Act. In the case in hand, there is a mother agreement and there are other ancillary agreements to the mother agreement. It is a case of composite transaction between the same parties or the parties claiming through or under them falling under Section 45 of the Act. Thus, the dictum stated in para 13 of the judgment of Sukanya would not apply to the present case.
133.3. Thirdly, on facts, the judgment in Sukanya's case, has no application to the case in hand.
134. Thus, we decline to examine the merit or otherwise of this contention.
64. In the case of Airtouch International (Mauritius) (supra), it was found that the petitioner of the said case had admitted that matter complained of in company petition was arising out of SHA and sixth respondent not found to be necessary party. In such facts situation, it was held that decision in Sukanya Holdings P. Ltd. (supra), did not come to the aid of the said petitioner. This decision shall have no application to the case on hand.
65. For the reasons stated above, no interference is called for in the impugned order in exercise of the powers under Article 226/227 of the Constitution of India. The petition is, therefore, dismissed. Interim relief, if any, stands vacated. Rule is discharged.
Sd/-
(C.L. SONI, J.) FURTHER ORDER After pronouncement of the judgment, learned senior advocate Mr. Trivedi requested to continue the interim relief for four weeks to enable the petitioners to approach the higher forum. This request is opposed on behalf of respondent Nos.2 to 4.
In view of the fact that the interim relief has remained operative till today, it would be in the fitness of things to direct the Page 87 of 88 C/SCA/2179/2014 CAV JUDGMENT CLB not to proceed with Company Petition for FOUR WEEKS from today. The CLB is directed accordingly.
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(C.L. SONI, J.) omkar Page 88 of 88