Company Law Board
Premier Automobiles Ltd. vs Fiat India Private Ltd. And Ors. on 6 March, 2006
Equivalent citations: [2007]137COMPCAS737(CLB), (2006)6COMPLJ595(CLB), [2007]77SCL38(CLB)
ORDER
S. Balasubramanian, Chairman
1. The respondents had filed CA 181 of 2002 under Section 45 of Arbitration & Conciliation Act, 1996 for referring the parties to arbitration in terms of Arbitration Agreement among the parties. By a detailed order dated 17th May, 2004, I dismissed the application on the ground that the respondent company was not a party to the arbitration agreement and that even in terms of the arbitration agreement entered into, even the application of the provisions of the said Act had been excluded in the arbitration agreement. This order was taken on an appeal before the Bombay High Court and with the consent of the parties, the said order was set aside and the matter has been remanded back to this Board for considering the application afresh.
2. The petitioner holds 2.52% shares in the 1st respondent company. This company was established as a joint venture company between the petitioner and the 10th respondent for manufacture, sale and distribution of cars of the 10th respondent. At the time of incorporation, the petitioner held 49% shares and the 10th respondent held 51% shares along with its wholly owned subsidiary - the 11th respondent. In view of issue of further shares, the petitioner's shareholding has come down to 2.52% while the 10 and 11th respondents collectively hold the balance shares. The petitioner being one of the 3 shareholders in the company has invoked the provisions of Sections 397/398 of the Act alleging oppression and mismanagement in the affairs of the company.
3. At the time of incorporation, both the groups entered into two agreements - a shareholders' agreement (SHA) and a joint venture agreement (JVA). These agreements spell out the duties and obligations and also their rights regarding management of the company. An escrow agreement (EA) had also been entered into by which the shares held by the petitioner were to be kept in the custody of an escrow agent. In all these 3 agreements, there is a provision for international arbitration in Geneva. The petitioner had two nominees on the Board, namely, the 6th and 9th respondents.
4. In the petition, the main allegations of the petitioner are that Board meetings are held without notice to the 6th and 9th respondents; that 9th respondent has been removed as. Chairman of the board in a board meeting held on 15th May, 2002 and he was also removed as a director in the EGM held on 24th May, 2002; that Article 40 of the AOA according to which 9th respondent is to be a life time director has been amended to delete this provision and that there is a proposal to remove the 6th respondent as a director in an EOGM proposed to be held. Alleging that all these acts are oppressive to the petitioner, it has ought for supersession of the Board and appointment of an administrator and for re-instatement of the 9th respondent as director and also for restraining the respondents from removing the 6th respondent as a director.
5. In the application, the stand of the respondents is: All the allegations in the petition are relatable to the terms of JVA and SHA and since the disputes arising out of these agreements have been agreed to be referred to arbitration, the petitioner cannot agitate these matters in a petition under Sections 397/398 of the Act. The petitioner itself was fully aware that the disputes were covered by the arbitration agreements and accordingly it had filed an application under Section 9 of the Arbitration Act before Bombay High Court seeking for certain interim reliefs which the High Court declined to grant. Thereafter, the petitioner filed an appeal before the Division Bench which was later withdrawn. Even though, the company was not a party to the SHA and JVA, it was a party to the escrow agreement along with the petitioner, 10th and 11th respondents. In other words, all these 3 shareholders are party to the agreements. Presently, the company is also prepared to abide by the arbitration agreement. Even in the petition, in paragraph 18, the petitioner has averred that the company being a joint venture between the petitioner and respondent No. 10 is bound by the terms of the arbitration agreement. Further, in paragraph 20, the petitioner has submitted "A limited interim relief sought from this tribunal will only be a measure of interim protection not affecting/impinging upon arbitration". In a petition under Sections 397/398 of the Act, the relief sought cannot be of interim nature pending arbitration and CLB has no jurisdiction to grant any such relief. Therefore, it is a fit case for referring the disputes raised in the petition, to arbitration.
6. The stand of the petitioner is: To invoke the arbitration clause in the agreements, there should be a commonality of parties which is absent in the present case. When the petition relates to the affairs of the company, unless the company is a party to the arbitration agreement, no relief can be granted against the company by the arbitrator. Admittedly, the company is not a party either to JVA or SHA. Even though, the company is.a party to the escrow agreement the agreement related only to the safe custody of the share certificates and has nothing to do with the affairs of the company. As a matter of fact, the Bombay High Court declined to grant any relief only on the ground that the company was not a party to the arbitration agreements. Many of allegations in the petition viz. amendment to Article 40, non issue of notices for board meetings, irregularity in the conduct of AGM held on 24th May, 2002 etc. are not covered in any of the agreements. In view of the fact that there is no commonality of parties and that many of the allegations cannot be traced to the terms of the agreements containing arbitration clause, the question of relegating the parties to arbitration does not arise. Since arbitration agreement is a consensual one, without the consent of the petitioner, the company cannot be added as a party to the arbitration proceedings.
7. Heard the counsel who reiterated the submissions in the pleadings. All the agreements have an arbitration clause similarly worded providing for international arbitration in case of any dispute arising out of and in connection with those agreements. The allegations of the petitioner in the petition relate to the management and in the affairs of the company. No doubt, JVA and SHA deal with some of the aspects of the management of the company, yet, the company is not a party to these two agreements. It is a party only to the escrow agreement which is restricted to custody of petitioner's shares and has nothing to do with the affairs of the company. Even though, the company is willing to abide by the terms of the agreement, in view of the. judgment of Supreme Court in Sukanya Holging Pvt Ltd. v. Jayesh H. Pandeya wherein the Supreme Court has held that there is no power conferred on the court to add parties who are not parties to the arbitration agreement, the willingness of the company to be added as a party is of no consequence. Therefore, when there is no commonality of parties and when many allegations in the petition are not traceable or related to matters covered under arbitration agreements and which can be examined without reference to any of these agreements, the question of relegating the parties to arbitration does not arise and accordingly the application- CA 181 of 2002 is dismissed.
8. The respondents will file their replies to the petition by 20.4.2006 and rejoinder, if any, to be filed by 20.5.2006. The petition will be heard on 8th June 2006 at 10.30 AM.