Rajasthan High Court - Jaipur
M/S Rajasthan Development Trus vs Smt Rani Surolia & Ors on 10 April, 2018
HIGH COURT OF JUDICATURE FOR RAJASTHAN
BENCH AT JAIPUR
S.B. Company Appeal No. 1/2008
1. M/s. Rajasthan Development Trust Pvt. Ltd. having its
registered office at Pandey Chanmbers, 6, Gopal Bari, Jaipur-
302001 through its Director, Mr. Rajiv Pandey
2. Mr. Rajiv Pandey, Chartered Accountant S/o Late Shri S.D
Pandey, Chartered Accountant, aged about 49 years, R/o Pandey
Niwas, 7, Gopal Bari, Jaipur.
3. Mrs. Rohini Pandey, W/o Mr. Rajiv Pandey, aged about 43
years, R/o Pandey Niwas 7, Gopalbari, Jaipur.
4. Shri S.D. Pandey, HUF through its Karta, Pandey Niwas, 7
Gopalbari, Jaipur.
.----Appellants
Versus
1. Smt. Rani Surolia W/o Mrs. Rajesh Surolia, aged about 46
years, R/o 26-C, Pocket-B, SFS Flats, Mayur Vihar Phase III, New
Kondli, New Delhi-96
2. Mr. Sanjiv Pandey S/o Late Shri S.D. Pandey, R/o Pandey
Niwas, 7 Gopalbari, Jaipur.
3. Smt. Sushila Pandey, W/o Late Shri S.D. Pandey, aged about
77 years, R/o Pandey Nivas, 7, Gopalbari, Jaipur.
----Respondents
For Appellant(s) : Mr. Gunjan Pathak
For Respondent(s) : Mr. Jai Kishan Yogi
Mr. Sanjiv Pandey, present in person
HON'BLE MR. JUSTICE SANJEEV PRAKASH SHARMA
Judgment / Order
Reserved on 11/01/2018
Pronounced on 10/04/2018
Reportable
1. Instant Company Appeal has been filed by the appellants under Section 10F of the Companies Act, 1956 (hereinafter referred as the 'Act of 1956') against the order dated 31/01/2008 passed by the Company Law Board, Delhi dismissing the Company Application No.307/2007 in Company Petition No.20/2006 filed by the appellants for referring the dispute between the parties for (2 of 21) [COA-1/2008] arbitration under Section 8 of the Arbitration and Conciliation Act, 1996 (hereinafter referred as the 'Act of 1996').
2. Instant appeal was admitted by this Court vide order dated 07/10/2010 and interim order passed on 02/05/2008 directing interregnum proceedings before the Company Law Board to remain suspended was made absolute.
3. The matter came up for final arguments.
4. The arguments were heard and order was reserved by this Court on 11/01/2018.
5. Brief facts which need to be noted for disposal of the instant Company Appeal are that the appellant no.1-M/s. Rajasthan Development Trust Pvt. Ltd. (hereinafter referred as the 'Company') is a Private Limited Company which was incorporated on 28/02/1974 and has its registered office at Jaipur. It is a closely held company of late Mr. S.D. Pandey Chartered Accountant and his family members. On 07/09/2000, Ms. S.D. Pandey expired and it appears that a dispute has arisen between his legal heirs i.e. two sons namely; Rajiv Pandey and Sanjiv Pandey, his wife namely; Smt. Sushila Pandey and his daughter namely; Rani Surolia. The younger son Sanjiv Pandey alongwith his mother Smt. Sushila Pandey and his sister Rani Surolia, who are respondents herein, preferred a Company Petition before the Company Law Board, Delhi under Section 397 and 398 of the Act of 1956 wherein they have made several allegations against the appellant no.2-Rajiv Pandey.
6. It was alleged by them that Mr. S.D. Pandey, who is father of Sanjiv Pandey & Rajiv Pandey and husband of Smt. Sushila Pandey was suffering from Parkinson disease since 1996 and on account of his disability Mr. Rajiv Pandey, who is also a Chartered (3 of 21) [COA-1/2008] Accountant, was taking care relating to the Company. From 1997 onward, the decision making power of Mr. S.D. Pandey impaired altogether. It is alleged that as per the annual return of AGM dated 30/09/1998, the major share holders were Mr. S.D. Pandey, his wife Smt. Sushila Pandey, his daughter Smt. Rani Surolia, his other family members through his HUF in the name and style of M/s. S.D. Pandey (HUF). Besides this, 100 share each were held by Mr. V. Shukla, Mr. R.P. Sharma and Mr. D.D. Sharma. The total prescribed share capital of the Company were 3500 shares of nominal value of Rs.100 constituting the total share capital of Rs.3,50,000/-. It is stated by the respondents herein in their Company Petition before the Company Law Board that as per Annual Returns of the Company as per annual general meeting dated 30.9.98, 30.9.99 & 30.9.00 details of shares held are as under :-
Subscribed Share Capital by various share holders as per annual return of M/s Rajasthan Development Trust Pvt. Ltd. filed.
Total Subscribed Share capital breakup detail :
3500 Equity Shares of nominal value of Rs. 100 Name of Share Holder Folio AGM AGM AGM No. Annual Return Copy Annex 30.9.98 30.9.99 30.9.00 A-4 A-5 A-6
1. Mr. S.D. Pandey 9/10 1350 1450 1350
2. Mrs. Sushila Pandey 03 850 950 950
3. Mrs. Rani Surolia 04 300 300 300
4. Mrs. Rohini pandey 12 200 200 200
5. Shri S. D. Pandey HUF 13 500 500 500
6. Mr. Rajiv Pandey 14 100 100
7. Vijay Shukla 05 100
8. Rajendra P. Sharma 07 100
9. Den Dayal Sharma 08 100 # Note : There is difference of 100 shares (4 of 21) [COA-1/2008]
7. It was further stated by the respondents in their Company Petition before the Company Law Board that without showing details of the change of the share holding mandatorily required in the annual return filed for the AGM dated 30.9.99 the shares structure was changed as shown in for the last AGM dated 30.9.98 as such the annual return filed by the company are misleading and false. How Mr. Rajiv Pandey got 100 equity shares is not reflected in the detail column of the annual return for the AGM dated 30.9.99 though mandatorily required to enlist the change of detail of share holding as per last AGM dated 30.8.98. The shareholding/ records/ledger were manipulated by Mr. Rajiv Pandey for his own personal advantage.
8. The respondents herein further stated in their Company Petition that upon death of Mr. S.D. Pandey on 07/09/2000, the legal heirs of Mr. S.D. Pandey, namely; his wife Smt. Sushila Pandey, his two sons Mr. Rajiv Pandey and Sanjiv pandey and his daughter Smt. Rani Surolia were entitled for the shares which were in the name of Mr. S.D. Pandey. However, the respondents have placed on record only returns of the Company filed by the appellant no.2 (Rajiv Pandey) from the year 1998-99 to 2003-04 to show that there has been reduction and increase of shares after 30/09/1998 without following due process of law. There was no meeting held of the Board of Directors authorizing such change whereby the share folio of Mr. S.D. Pandey was reduced by 100 shares and of one Mrs. Rohini Pandey wife of Mr. Rajiv Pandey was increased by 100 shares. After death of Mr. S.D. Pandey, the annual return of the year 2000-2001 was filed by Mr. Rajiv Pandey wherein it was mentioned that the total share holding of Mr. S.D. Pandey of 1350 shares was transmitted to the folio of Mr. Rajiv (5 of 21) [COA-1/2008] Pandey unilaterally making him the majority share holder. Mr. Rajiv Pandey also increased share numbers of his wife Mrs. Rohini Pandey in the column of annual return to 300 shares. It is further alleged that Mr. Rajiv Pandey inducted his wife Mrs. Rohini Pandey as Additional Director of the Company and filed Form No.32 without there being any approval from the Board of Directors. The accounts of Financial Year 2001-02 were audited by a different auditor who was a business associate of Mr. Rajiv Pandey who is himself a Chartered Accountant and without taking no objection from the previous auditors and without notice or approval in AGM, the new auditor was appointed.
9. With the aforesaid allegations, it was alleged that the meetings were conducted without information and proceedings of the meeting of the Board of Directors having been recorded and the record of the Company, shares and debentures have been taken into personal possession by Mr. Rajiv Pandey who is using them for his personal gains and wrongfully the wife of Mr. Rajiv Pandey has been made as Additional Director of the Company and thereafter as regular Director which has resulted in a complete management of the Company having been wrongfully taken by the appellant no.2-Rajiv Pandey. It is stated that on death of Mr. S.D Pandey, the shares of Mr. S.D. Pandey were required to be in the name of his legal representatives who were neither informed nor their no objection was taken and the entire share holding of Mr. S.D. Pandey was transmitted by the appellant no.2-Rajiv Pandey in his own handwriting and signatures in his own folio and thus, there has been a forgery also committed. The respondents no.1 & 3 herein, who were Directors of the Company, were not called for Board of Directors Meetings and notices have not been (6 of 21) [COA-1/2008] received which is in violation of Section 172 of the Act of 1956. The auditor has wrongfully been appointed and the respondents herein have served notice to the auditor challenging his appointment. The share holders and members have not been given notice of the meeting and in such circumstances, it was prayed in the Company Petition that the affairs of the Company which are being conducted by the appellants no.2 & 3 herein namely; Rajiv Pandey and his wife Mrs. Rohini Pandey are in a manner prejudicial to the public interest and oppressive to the other share holders and it has been prayed for an order to be passed by the Company Law Board in order to being an end to the matter, complaint and preventing oppression and mismanagement of the affairs of the Company. It has been further prayed that 950 shares purchased by respondent No.2 herein (Mr. Sanjiv Pandey) from his mother Smt. Sushila Pandey, respondent No.3 herein must be ordered to be transferred in their names and the same be approved. Other ancillary prayers have also been made.
10. Without filing reply to the Company Petition the respondents before the Company Law Board (the appellants herein) filed an application on 02/08/2007 stating that the Company Petition has been filed primarily for rectification of the register of the members of the Company and to regulate the affairs of the Company. It was stated in the application that Clause 53 of the Articles of Association of the Company, reads as under:-
"53. ......Where any difference arises between the company on the one hand, any of the members, executors, administrators, assignees being on the other hand, touching the true intent or construction or the incidence or the consequences of these presents, or touching any breach or alleged breach of these (7 of 21) [COA-1/2008] presents, or otherwise relating to any of the affairs of the company, every such difference shall be referred to the arbitration under the provisions of the Indian Arbitration Act"
11. In the aforesaid application, it was thus stated by the appellants herein that as per Section 8 of the Act of 1996, a Judicial Authority shall have to, at the request of one of the parties, refer the parties to arbitration when such Judicial Authority is seized of an action in a manner in respect of which the parties have made an agreement for an arbitration. It was therefore, prayed that in view of Section 8 of the Act of 1996 and Clause 53 of the Articles of Association, the Company law Board ought to refer the dispute to arbitration under the Act of 1996.
12. The respondents herein filed reply to the said application and submitted that the relief prayed by the appellants herein before the Company Law Board cannot be granted by the Arbitrator in arbitral proceedings and the relief is beyond the purview of arbitration. It was submitted that Section 397, 398 of the Act of 1956 is not barred by arbitration clause. It was stated that the respondents herein have alleged in their Company Petition before the Company Law Board about fraudulent conduct of meetings, filing of false statutory returns, illegal appointment of statutory auditor and illegal transfer of shares as well as tempering the final accounts of the Company on the part of Mr. Rajiv Pandey appellant no.2 herein which go beyond the scope of the arbitration clause as noted under Article 53 of the Articles of Association.
13. The Company Law Board, after hearing both the parties at length, dismissed the application filed by the appellants herein vide order dated 31/01/2008 with directions to the appellants herein to file reply to the Company Petition and with further (8 of 21) [COA-1/2008] direction to the respondents herein to file their rejoinder with further observations that the matter shall be heard finally.
14. The Company Law Board, after noting the submissions of both the parties, has given its finding holding that when such an application is filed under Section 8 of the Act of 1996, the Judicial Authority is required to decide the jurisdictional issue raised before it before making or declining to make reference to the arbitrator.
15. Learned counsel for the appellants submits that the Company Law Board has erred in holding the Article 53 of the Articles of Association has no application in relation of the Company Petition as the dispute raised is amongst the members of the Company in liquidation and not between the members on one hand and Company on the other as envisaged under Article 53 of the Articles of Association. It is his submission that Article 53 of the Articles of Association also takes into its control of the Company on one hand and the other members who are not controlling since the corporate veil has to be necessarily lifted. Further, learned counsel submits that the allegations relating to transfer of shares, manipulation of records, rectification of membership register etc. could be dealt with under the arbitration clause. The differences arising between shareholders of the Company as per Article 53 of the Articles of Association were required to be resolved by arbitration alone. It is submitted that the Articles of Association have tobe treated as a contract between the Company and the shareholders and it would be deemed as if the Company and the members thereof have respectively signed the agreement and would be therefore bound by it. Learned counsel further submits that merely because they had sought time (9 of 21) [COA-1/2008] to file reply to the main petition and merely because some documents had been submitted in terms of the order passed by the Company Law Board, it cannot be said that the application under Section 8 of the Act of 1996 was not timely. It is submitted that there is no such requirement under Section 8 of the Act of 1996 that the parties should file an application not later on without first submitting their statement on the proceedings of the dispute. Learned counsel further submits that the Company Law Board itself has held in the case of Escorts Finance Ltd. Vs. G.R. Solvents and allied: 1999 (96)CompCas 323 CLB that where there is an existence of arbitration clause, the matter should be referred to arbitration. He also relied on the judgment passed by the Apex Court in the case of Sundaram Finance Limited and another Vs. T. Thankam: (2015) 14 SCC 444 wherein it has been held as under:-
"13. Once an application in due compliance with Section 8 of the Arbitration Act is filed, the approach of the civil court should be not to see whether the court has jurisdiction. It should be to see whether its jurisdiction has been ousted. There is a lot of difference between the two approaches. Once it is brought to the notice of the court that its jurisdiction has been taken away in terms of the procedure prescribed under a special statue, the civil court should first see whether there is ouster of jurisdiction in terms or compliance with the procedure under the special statute. The general law should yield to the special law - generalia specialibus non derogant. In such a situation, the approach shall not be to see whether there is still jurisdiction in the civil court under the general law. Such approaches would only delay the resolution of disputes and complicate the redressal of grievance and of course unnecessarily increase the pendency in the court."
16. Learned counsel for the appellants also relied on the judgment passed by the Delhi High Court in the case of Prem (10 of 21) [COA-1/2008] Sagar Khanna Vs. Ravi Khanna and others: AIR 2002 (Del.) 98 wherein it was held as under:-
17. Section-8 is couched in mandatory form. It is a significant departure from the similar provision contained in Section 34 of the Old Act which gave discretion to the court to stay or not to stay the proceedings. In fact Section 8 of the new Act does not even mention about the stay of the suit but empowers the Court to refer the parties to arbitration.
17. Learned counsel for the appellants therefore submits that the Company Law Board has erred in rejection the application filed by the appellants.
18. Per-contra, Mr. Sanjiv Pandey, Adv. (respondent No.2), appearing in person has supported the order passed by the Company Law Board. It is his submission that prima-facie, it is a case where there has been a gross mismanagement of the Company affairs. The provisions of Section 397 and 398 of the Act of 1956 are meant for adjudication relating to mismanagement of the affairs and the power is not available to the Arbitrator with regard to adjudication of the dispute as raised in the Company Petition nor the relief claimed by the respondents herein in their Company Petition could be granted by the Arbitrator. Learned counsel relied on the law laid down by the Apex Court in the case of Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya and another:
(2003) 5 SCC 531. He has also challenged maintainability of the present appeal impugning the order rejecting the application under Section 8 of the Act of 1996. It is submitted that neither appeal lies under Section 37 of the Act of 1996 on rejection of the application under Section 8 of the Act of 1996 nor appeal would lie under Section 10F of the Act of 1956. He relied on the judgment passed by the Apex Court in the case of Fuerst Day Lawson Ltd.
(11 of 21) [COA-1/2008] Vs. Jindal Exports Ltd.: (2011)8 SCC 333; Conros Steels Pvt. Ltd., Mumbai Vs. Lu Qin (Hong King) Company Ltd., Hong Kong and others: AIR 2015 (Bombay) 106; Kotak Mahindra Investment Ltd.
Vs. Kitply Industries Ltd. & anr.: AIR 2012 (Calcutta) 24 and Purnima Manthena and another Vs. Renuka Datla and others:
(2016) 1 SCC 237 to contend that the present appeal under Section 10F of the Act of 1956 is not maintainable. He has taken to this Court to the various order-sheets of the Company Law Board. It is stated by him that the appellants herein, who were respondents before the Company Law Board, had been served of the Company Petition which was filed in 2006 and initially the matter was adjourned as there were talks of compromise.
However, no one entered appearance on behalf of the appellants. On 01/06/2007, the appellants were directed to file reply to the Company Petition within extended time of three weeks failing which time to file reply would be over and the Board would proceed with arguments on the Company Petition. The case was adjourned for 02/07/2007. After the appellants were directed to provide records for inspection, on 07/08/2007 the appellants appeared before the Company Law Board. It is also stated that a cost of Rs.5000/- for not filing reply was also deposited by the appellants. Thus, it is stated that the appellants had already submitted to the jurisdiction of the Company Law Board and therefore, they could not invoke the provisions of Section 8 of the Act of 1996. In support thereof, respondent no.2 relied on the judgment passed by the Supreme Court in the case of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and others:
(2011) 5 SCC 532. wherein it was held as under:-
"25. Not only filing of the written statement in a suit, (12 of 21) [COA-1/2008] but filing of any statement, application, affidavit filed by a defendant prior to the filing of the written statement will be construed as `submission of a statement on the substance of the dispute', if by filing such statement/application/affidavit, the defendant shows his intention to submit himself to the jurisdiction of the court and waives his right to seek reference to arbitration. But filing of a reply by a defendant, to an application for temporary injunction/attachment before judgment/appointment of Receiver, cannot be considered as submission of a statement on the substance of the dispute, as that is done to avoid an interim order being made against him."
19. Mr. Sanjiv Pandey, respondent no.2 further submits that Clause 53 of the Articles of Association could not be termed as an arbitration clause. He relied on the law laid down by the Apex Court in the case of Atul Singh and others Vs. Sunil Kumar Singh and others: (2008) 2 SCC 602 and stated that the validity of Clause 53 has to be examined with reference to the dispute raised. The validity of the arbitration clause has to be decided by the judicial authority as held in the case of SBP & Co. Vs. Patel Engineering Ltd. and another : 2005(8) SCC 618. He further submits that the application was not proper as required under Section 8 of the Act of 1996. It is submitted that an application under Section 8 of the Act of 1996 requires following conditions to be specified:-
(a) that there exists an arbitration clause;
(b) that action has been brought to the Court by one party to the arbitration agreement against the other party;
(c) that the subject matter of the suit is same as the subject matter of arbitration agreement;
(d) that the other party before he submits his first statement of proceedings of the dispute moves the Court for referring the parties to the arbitration and (13 of 21) [COA-1/2008]
(e) that alongwith the application, the other party tenders the original arbitration agreement or duly served copy thereof.
20. Mr. Sanjiv Pandey, Adv., respondent No.2 relied on the law laid down by the Apex Court in the case of M/s. Magma Leasing & Fin. Ltd. & anr. Vs. Potluri Madhavilata & Anr.: 2009(10) SCC 103. He further submits that the only purpose of the appellants is to delay the proceedings and prays that the appeal ought to be dismissed. He has also placed before this Court the order passed by the coordinate Bench hearing arbitration matters in Arbitration Application No.26/2017 (M/s. Rajasthan Development Trust Pvt. Ltd. & others Vs. Smt. Rani Surolia & others), decided on 06/10/2017 and also the order passed in Review Petition No.165/2017 dated 16/02/2018 to contend that during pendency of the present company appeal, the appellants had preferred an arbitration application for appointment of an arbitrator with an averment that the company petition proceedings had been stayed by this Court and therefore, invoking Section 53 of the Act of 1996, it was prayed that Arbitrator be appointed after the notices was sent by the appellants to the respondents. The coordinate Bench hearing arbitration proceedings has dismissed the application and the review petition was also dismissed and therefore, it is submitted that even the coordinate Bench hearing arbitration proceedings did not accept the contention of the appellants that the matter could be referred to arbitration. He further submits that the appellants had submitted to the jurisdiction of the Company Law Board by virtue of depositing the cost imposed by the Company Law Board and thereafter sought time to file reply. They also deposited the statutory record with (14 of 21) [COA-1/2008] the Company Law Board and thus, the prerequisites of provisions of Section 8 of the Act of 1996 were not made out.
21. Mr. J.K. Yogi, who appeared for respondent no.1, has also submitted written statement and supported the submission of Mr. Sanjiv Pandey, respondent no.2.
22. This Court has considered the submissions advanced before the Court as well as the written submissions filed by both the parties after the judgment was reserved.
23. The first question which needs to be examined is whether the dispute in the nature of an application moved under Section 397, 398 of the Act of 1956 before the Company law Board as envisaged under the Act of 1956 could be referred for adjudication. The scope of Section 8 of the Act of 1996 which provides for power to refer parties to arbitration where there is an arbitration agreement came up for consideration before the Apex Court in the case of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and others: (2011) 5 SCC 532 wherein it was observed by the Apex Court as under:-
"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.
(15 of 21) [COA-1/2008] 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 recognised 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. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and Judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary).
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."
(16 of 21) [COA-1/2008]
24. In the case of Haryana Telecom Ltd. Vs. Sterlite Industries (India) Ltd. : 1999 (5) SCC 688, it was held by the Supreme Court as under:-
4. "Sub-section (1) of Section 8 provides that 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 arbitration and, therefore, the High Court, in our opinion was right in rejecting the application."
25. In the case of Sukanya Holdings (P) Ltd. Vs. Jayesh H. Pandya and another: (2003) 5 SCC 531, the Supreme Court, while considering the issue where the subject matter of the suit falls partly within the arbitration agreement and partly outside and which involves parties of whom some are parties to the arbitration agreement while some are not, held that Section 8 of the Act of 1998 would not be attracted. In the aforesaid case, it was held as under:-
"15. The relevant language used in Section 8 is "in a matter which is the subject of an arbitration agreement". The court is required to refer the parties (17 of 21) [COA-1/2008] 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 Section 8. The words 'a matter' that the indicates entire subject matter of the suit should be subject to arbitration agreement."
26. One may usefully quote Section 34(2)(b) of the Act of 1961 which provides that an arbitral award may be set aside by the Court only if the Court finds that the first the subject matter of dispute is not capable of settlement by arbitration under the law for the time being in force.
27. Having noted the above position of law as settled by the Supreme Court, a look at Clause 53 of the Articles of Association of the Company, can too show that the disputes which are to be referred for arbitration under the provisions of the Indian Arbitration Act, would be where an indifference arises between the Company on one hand and members, executors, assignees on the other hand. On the other hand, a look at Section 397 of the Act of 1956 provides for moving an application to the Company law Board (now Tribunal) for relief in cases of oppression and Section 398 of the Act of 1956 is an application for relief in cases of mismanagement. The applications are to be moved by any member of the Company. The complaint under Section 397 and 398 is with regard to all the oppression and mismanagement to any member or members by conducting of the affairs of the Company. Thus, it is not the Company against which the dispute is raised but is essentially against the Directors of the Company who are managing affairs of the Company. Thus, it cannot be said that (18 of 21) [COA-1/2008] the dispute is in personam or between Company and a particular member, executor, administrator or assignee on one part and Company on the other part but is amongst the members of the Company itself. In the present case, the allegations levelled by the respondents is against the action of Mr. Rajiv Pandey in mismanaging the affairs of the Company which has caused prejudice to the other members, shareholders which is also prejudicial to public interest and the interest of the Company itself. Thus, the arbitration clause 53 would not apply to cases relating to application moved by any member under Section 397 and 398 of the Act of 1956.
28. As noted above, the facts, prima-facie, depict that there has been a mismanagement at the hands of the appellant no.2 and as alleged by the respondents. The orders which the Company law Board can pass in terms of Section 397 and 398 of the Act of 1956 cannot be passed by arbitrator under the Act of 1996. The order passed by the Company Law Board or Company Tribunal under Section 397, 398 of the Act of 1956 is appealable under the said Act before the High Court under Section 10FQ of the Act of 1956 and there is a complete code provide under the Act of 1956 as to the manner in which the applications shall be decided.
29. In contrast thereto, the arbitration appointed under the Act of 1996, if allowed to examine the disputes which has been raised relating to mismanagement and oppression of the affairs of the Company, it would be incapacitated to pass an order within the fore corners of the Act of 1956. This Court agrees with the order passed by the Company Law Board dated 31/01/2008 whereby the application filed by the appellants was dismissed.
(19 of 21) [COA-1/2008]
30. The contention of learned counsel for the appellants with regard to the judgments cited at bar and noted above i.e. Sundaram Finance Limited and another Vs. T. Thankam (supra), would not be applicable to the present case for the reason that the facts of the said case were different from the present case. The application under Section 8 of the Act of 1996 was filed before the Civil Court where the proceedings were going on. The nature of proceedings were in personam i.e. between the two parties alone and did not have any travails towards the public at large. However, in a case where Section 397, 398 application is moved, not only th mismanagement and oppression is examined with reference to the members inter-se but also towards public at large and also towards the affairs of the Company itself. Thus examined, it is a case where the jurisdiction of the arbitrator is ousted and therefore, this Court upholds the order passed by the Company Law Board rejecting the application of the appellants under Section 8 of the Act of 1956.
31. In the case of Vimal Kishor Shah and others Vs. Jayesh Dinesh Shah and others: 2016(8) SCC 788, the Apex Court rejected the application under Section 8 of the Act of 1996 where the dispute was relating to public trust relying on the judgment passed in the case of Booz Allen and Hamilton Inc. Vs. SBI Home Finance Limited and others (supra).
32. For the reasons stated above, this Court leaves the other judgments which have been sited by learned counsel for the appellants before this Court of various High Courts and as noted herein above.
33. While this Court agrees with the submissions of learned counsel for the appellants that the appellants cannot be said to (20 of 21) [COA-1/2008] have submitted jurisdiction of the Company Law Board, merely because of having sought time for filing of reply or for having submitted the record in directions of the Company Law Board and they could have moved application under Section 8(1) of the Act of 1996, as held by the Apex Court in the case of Greaves Cotton Limited Vs. United Machinery and Appliances: 2017(2) SCC 268 but this Court finds that the application moved under Section 8 of the Act of 1996 was not in accordance with the requirement of Section 8 of the Act of 1996. As per Section 8(2) of the Act of 1996, the application under Section 8(1) of the Act of 1996 for referring the parties to arbitration could not have been entertained unless it was accompanied by original arbitration agreement or duly certified copy thereof. Admittedly, the original arbitration agreement or duly certified copy thereof was not accompanied the application moved under Section 8 of the Act of 1996 (It may be noted that the proviso for not filing the same on account of certain reasons was added w.e.f. 23/10/2015 and therefore, the application could not have been entertained.
34. In the case of Atul Singh and others Vs. Sunil Kumar Singh and others: (2008) 2 SCC 602 it has been held by the Apex Court as under:-
"19.There is no whisper in the petition dated 28.2.2005 that the original arbitration agreement or a duly certified copy thereof is being filed along with the application. Therefore, there was a clear non- compliance of sub-section (2) of Section 8 of the 1996 Act which is a mandatory provision and the dispute could not have been referred to arbitration. Learned counsel for the respondent has submitted that a copy of the partnership deed was on the record of the case. However, in order to satisfy the requirement of sub- section (2) of Section 8 of the Act, Defendant 3 should have filed the original arbitration agreement or a duly certified copy thereof along with the petition filed by him on 28.2.2005, which he did not do.
(21 of 21) [COA-1/2008] Therefore, no order for referring the dispute to arbitration could have been passed in the suit."
35. Another aspect which has been pointed out during the course of argument is in relation to the Act of 1996. In the case of Fuerst Day Lawson Ltd. Vs. Jindal Exports Ltd. (supra), it has been held by the Apex Court that the Arbitration and Conciliation Act, 1996 is a self contained code in itself and Section 37 of the Act of 1996 provides orders against which appeal would lie and none other while under Section 10F of the Act of 1956, appeal would lie against any order final or of interim nature passed by the Company Law Board to the High Court or NCLT. Thus, on account of the same, any application moved under Section 397 and 398 of the Act of 1956 and the disputes raised therein cannot be sent for arbitration under the Act of 1996. The order of the Company Law Board therefore, does not call for any interference.
36. Consequently, the instant appeal preferred by the appellants is dismissed. Further, the Company Law Board is directed to proceed and decide the company petition under Section 397, 398 preferably within a period of six months hereinafter. No costs.
(SANJEEV PRAKASH SHARMA),J Raghu/