Company Law Board
Sporting Pastime India Ltd. And K.K. ... vs Kasturi And Sons Ltd. [Alongwith C.A. ... on 5 December, 2005
Equivalent citations: [2007]137COMPCAS821(CLB), [2006]70SCL391(CLB)
ORDER
K.K. Balu, Vice-Chairman
1. In this company petition filed by M/s Kasturi & Sons Limited ("the petitioner") under Sections 397, 398, 402 and 403 of the Companies Act, 1956 ("the Act") alleging acts of oppression and mismanagement in the affairs of M/s Sporting Pastime (India) Limited ("the Company"), the respondents 1, 2, 5 and 8 to 10 have filed these applications under Section 8 of the Arbitration and Conciliation Act, 1996 ("the Act, 1996") to direct the parties for arbitration and dismiss the company petition as not maintainable both on law and facts on the premises that the grievances of the petitioner form part of an agreement dated 19.07.2004, Clause 21 of which provides for resolving the disputes by arbitration and that the petitioner has already instituted the arbitration proceedings to resolve certain disputes, which are inter-connected with the acts complained of in the company petition.
2. The facts, in a nutshell, which led to the present company petition are that the first respondent Company incorporated in May 1994 as a 100% subsidiary of the petitioner for the sole purpose of establishing, maintaining and conducting a golf course cum beach resort could not achieve its main object and therefore the petitioner entered into an agreement with the second respondent on 19.07.2004, regarding the taking over of the Company. Accordingly, the second respondent acquired 90% shareholding, controlling and management interest in the Company for a lumpsum consideration of Rs. 2.43 crores, apart from agreeing to discharge the debts and liabilities due by the Company to the petitioner and several others and relieve the petitioner of its guarantee obligations in respect of the Company within the stipulated time. The liabilities taken over by the second respondent remain undischarged. However, pursuant to acquisition of the shares by the second respondent, the petitioner's nominees resigned from the office of director and the respondents 3 and 4, being nominees of the second respondent were inducted on the board of directors of the Company. The grievances of the petitioner are that, ever since taking over the control and management of the Company in August 2004 by virtue of the agreement, the respondents 2 to 6 have been reportedly indulging in acts of oppression and mismanagement in the affairs of the Company and therefore invoked the jurisdiction of Sections 397 and 398.
3. Shri K.S. Ravichandran, learned practicing Company Secretary and Authorized Representative of the applicants raised a preliminary objection on the maintainability of the company petition, in view of the acts complained of in the company petition are covered by the agreement, which contains arbitration clause and therefore the parties must be referred to arbitration, without adjudicating the disputes by the CLB. The petitioner, pursuant to the agreement transferred 90% of its shares in the Company on receipt of Rs. 2.43 crores in favour of the second respondent. The petitioner has to sell the remaining 10% of its holding in the Company to the second respondent or his nominees and it cannot have any grievance in the affairs of the Company. The underlying object of the agreement is that the petitioner would cease to hold any shares in the Company. The petitioner is neither concerned with the Company. The terms of the agreement dated 19.07.2004 have not been incorporated in the articles of association of the Company. The Company has been incorporated as early as in the year 1994 and the petitioner could not carry on the business in terms of its main object all these eleven years. The Company could not achieve its main object, even after entering into the agreement with the petitioner. It is not fair on the part of the petitioner to expect any positive achievement immediately on entering into the agreement. If in any proceeding, the maintainability itself is being seriously questioned, it is appropriate that the Court should first consider and decide the question of maintainability, especially when it would go to the root of the matter, as held by the Supreme Court in National Highway Authority of India v. Ganga Enterprises and Gagandeep Pratishthan Private Limited v. Mechano . The petitioner has solely relied upon the agreement in prosecuting the company petition. This Board in R. Balakrishnan v. Vijay Dairy and Farm Products (P.) Limited (2005) 59 SCL 667 held that any relief for breach of an agreement and consequential relief do not arise before the CLB under Section 397/398. The Calcutta High Court in Pinaki Das Gupta v. Maadhyam Advertising Private Limited (2003) Vol. 114 CC 346 held that when all the issues raised in the petition are covered by the arbitration agreement, there is no scope to examine whether the petitioner has been oppressed or not. It is necessary, in terms of Section 8 of the Act, 1996 to refer the matter to the arbitration. In Airtouch International (Mauritius) Limited v. RPG Cellular Investments and Holdings Private Limited (2004) Vol. 121 CC 647 this Board held that "If the party applying for reference of disputes to arbitration is able to establish that there are bona fide disputes arising out of an arbitration agreement and that the arbitrator could settle the disputes by appropriate reliefs, then the Company Law Board will have to refer the parties to arbitration in terms of Section 8 or Section 45 of the Arbitration and Conciliation Act, 1996, as the case may be". The arbitral tribunal has been duly constituted, the petitioner has submitted the issues to the tribunal, and obtained substantive injunctive relief under Section 9 of the Act, 1996. The petitioner has every legal right to seek any relief before the arbitral tribunal for the alleged breach of the terms of the agreement. By virtue of Section 8 of the Act, 1996, once an arbitration agreement is shown to be in existence, the CLB is bound to refer the parties for arbitration. The fundamental matters covered in the company petition are liable to be adjudicated upon by the arbitral tribunal and any decision which may be rendered by the CLB at this point of time would result in multiplicity of proceedings and conflicting decisions. The decision of the arbitral tribunal will operate as res judicata in the subsequent petition between the same parties. The respondents 1 & 2 alone are formal parties to the present proceedings who are parties to the agreement and therefore, there is no legal impediment in invoking the arbitration clause to redress the grievances raised in the company petition. The apex court in Canara Bank v. Scanomax India Limited (2000) 99 CC 285 held that if the decision of the matter arising in the former suit decides not merely that suit but also operates as res judicata in the subsequent suit between the same parties, it can be said that the matter in issue is "directly and substantially" the same in both the suits. The petitioner is guilty of forum shopping, despite the fact that it has already initiated the arbitration proceedings in respect of the disputes arising out of the agreement. The primary concern of the petitioner is recovery of the amounts from the respondents 1 & 2 and the disputes raised by the petitioner before the arbitral tribunal as well as the CLB are interconnected. There is no scope in the company petition for examining whether the Company's affairs are being conducted in a manner oppressive to the petitioner. In Premier Automobiles Limited v. Fiat India Private Limited (2005) Vol. 124 CC 14, this Board has rejected the application made under Section 8 of the Act, 1996 on among other grounds that the company, in the affairs of which the petition under Sections 397 and 398 has been filed, is not a party to the relevant agreements containing arbitration clause. In the present company petition the Company is a party to the arbitration agreement and therefore, the present application for reference to arbitration has to be granted.
4. Shri T.V. Padmanabhan, learned Counsel, while opposing the company applications submitted that the petitioner primarily approached the arbitral tribunal claiming contractual reliefs on account of the breach of certain terms of the agreement dated 19.07.2004 by the second respondent in exercise of its rights under the agreement and not for statutory violations or oppressive acts of the respondent group. Accordingly, the petitioner filed applications before the "High Court of Madras under the Act, 1996, seeking interim orders, upon which, the company secretary of the petitioner came to be appointed as the interim receiver to preserve the Company's assets and further the Company was restrained from alienating or selling any of its assets. The petitioner has claimed against the respondents 1 & 2, an amount of Rs. 31.74 crores spent by it on behalf of the Company and damages of Rs. 5 crores for breach of the agreement. The petitioner has not made any money claim in the company petition, but sought appropriate remedies with a view to bringing to an end the oppressive acts of the respondents. This Board in Machino Plastics Ltd. v. Caparo Maruti Ltd. C.P. No. 17/2002 held that the subject matter of the petition should be subject matter of the arbitration agreement to invoke the provisions of Section 8 of the Act, 1996. Further, the parties to the arbitration are different from those in the company petition. Similarly, the reliefs claimed in the arbitration are entirely different from the prayers made in the company petition. Where the parties to the petition under the agreement are not similar and also subject matter of the petition is not totally covered under the clauses of the agreement, the application for referring the case to arbitration cannot be allowed, especially when it would amount to splitting of subject matter of the petition as held by the Supreme Court in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandya (2003) 5 Supreme Court Cases 531. The reliefs for cancellation of shares, inspection of records, supersession of board of directors etc. cannot be claimed before the arbitral tribunal. It is not within the competence of the arbitral tribunal to adjudicate and grant relief in respect of the acts of oppression and mismanagement complained of in the company petition. In Lammertz Industrienadel GmbH v. Altek Lammertz Needles Limited CP No. 3 of 2004, this Board held that when the reliefs sought by the petitioner cannot be granted by an arbitrator and are available under the provisions of Sections 397 and 398 read with Sections 402 and 403 from the CLB, the statutory jurisdiction of the CLB cannot be ousted even by consent of the parties. Thus, both the proceedings are entirely for different purposes with different remedial measures. Moreover, it is only the issue of pure law which can be tried as a preliminary issue, which is rather absent in the present matter.
5. After having heard the oral submissions made on behalf of the parties, the issue before me is whether the action brought in before the CLB in the company petition is the subject matter of the agreement dated 19.07.2004 attracting Section 8 of the Act, 1996?
Before considering the contentious issue, provisions of Section 8 of the Act, 1996, acts complained of in the company petition and terms of the agreement dated 19.07.2004 assuming utmost relevance and importance have to be borne in view.
Section 8 of the Act, 1996 reads thus:
(1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.
(2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under Sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
By virtue of Section 8 of the Act, 1996, it is mandatory for, the judicial authority, before which an action has been brought in a matter, being the subject matter of an arbitration agreement, to refer the parties for arbitration provided, (a) the application under this section is made any time before submitting the first statement on the substance of the dispute"; and (b) the judicial authority is satisfied that there is a valid arbitration agreement. Sub-section (3) provides that an arbitration may be commenced or continued and an arbitral award be made in spite of (a) application made under Sub-section (1) and (b) pendency of the issue before the judicial authority.
This Board, on the strength of various judgments of the different High Courts and the Supreme Court considered the scope of Section 8 of the Act, 1996 and held in (a) Airtouch International (Mauritius) Limited v. RPG Cellular Investments and Holdings Private Limited (supra) that if the acts complained of before the CLB are bonafide disputes directly arising out of or in connection with the arbitration agreement and that the arbitrator could settle the disputes by appropriate reliefs, then the CLB will have to refer the parties to arbitration; (b) Pinaki Das Gupta v. Maadhyam Advertising Private Limited (supra) concluded that the parties shall be referred to arbitration in terms of Section 8 of the Act, 1996, when all the issues raised before the CLB are covered by the arbitration agreement; (c) Premier Automobiles Limited v. Fiat India Private Limited (supra) declined to entertain any reference to arbitration on the grounds - the company, in the affairs of which the petition has been filed before the CLB, is not a party to the agreement containing arbitration clause; there are certain allegations on matters which are not covered under the arbitration agreement, which can be examined only by the CLB and bifurcation of matters between the CLB and arbitral tribunal is not permissible; (d) R. Balakrishnan v. Vijay Dairy and Farm Products (P.) Limited (supra) held that the grievances of a member and reliefs claimed by such aggrieved member, flowing from an agreement, must be agitated in a competent civil court and no relief shall lie for breach of any contractual obligation under Section 397 or 398 before the CLB; (e) M/s Lammertz Industrienadel GmbH v. Altek Lammertz Needles Limited (supra) held that where the grievances of the petitioner before the CLB are directly relating to the rights of or benefits to shareholders in their capacity as member of the company, arising out of the provisions of the Companies Act and articles of association of the company; where the petitioner is enforcing his statutory power which can be adjudicated without reference to the terms of the agreement containing arbitration clause and where the reliefs cannot be granted by an arbitrator and are available under Section 397 and 398 read with Sections 402 and 403 from the CLB, the statutory jurisdiction of the CLB cannot be ousted even by consent of the parties; and (f) Machine Plastics Limited v. Caparo Murti Limited (supra), the prayer of parties to arbitration has been rejected in view of the fact that the parties to the company petition and the agreement are not the same; that reliefs claimed in the petition and in the arbitration proceedings are not similar; that the subject matter of the petition is not totally covered by the agreement; any splitting of subject matter of the petition is not permissible and that all parties to the petition have not signed the agreement.
The Supreme Court in Sukanya Holdings (P) Ltd. v. Jayesh H. Pandey (supra), while interpreting Section 8 of the Act, 1996 enunciated the following among other principles:
(i) 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, the subject matter of the suit lies outside the arbitration agreement and also between some of the parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The entire subject of the suit should be subject to the arbitration agreement.
(ii) There is no provision in the Act, 1996 suggesting that when the subject matter of the suit includes subject-matter of the arbitration agreement as well as other disputes, the matter is required to be referred to arbitration. There is also no provision for splitting the cause or parties and referring the subject-matter of the suit to the arbitrators.
(iii) There is no provision dealing with the situation where some parties to the suit are not parties to the arbitration agreement.
Against the above legal background made out by learned Counsel/Authorised Representative, the alleged acts of oppression and mismanagement in the affairs of the Company and the essential terms and conditions of the agreement dated 19.07.2004 governing the rights and obligations of the parties thereto must be examined. Accordingly, the grievances of the petitioner set out in the company petition are summarized here below:
• The sole object of acquiring the Company by the second respondent is to use it a medium for parking illegal funds, to exploit its real estate by pledging the title deeds for his personal benefit and to divert illegal funds received from abroad for personal gains. The directors, being trustees as regards the assets of the Company, have completely breached their fiduciary obligations by not utilizing them for the Company's benefit.
• The second respondent pledged all the share certificates accounting for 90% of the shares and original title deeds of the Company with a foreign company in violation of the provisions of the Act and Foreign Exchange and Management Act.
• Pursuant to the transfer of shares in favour of the second respondent and his nominees in terms of the agreement, there are only a total number of six members in the Company including the petitioner. The second respondent has not chosen to ensure the minimum number of seven members which is violative of Section 45 of the Act, compelling the petitioner to transfer, out of its holding, one share each to S. Kuppuswamy and T.B. Narayanaswamy to maintain the minimum statutory number of seven members.
• The respondents 2, 3 & 4 along with one Gopinath Athappan, son of the third respondent were involved in the promotion of a group of companies with cross-holdings incorporated or acquired for siphoning of the Company's funds and assets. These respondents were responsible in diverting Rs. 25 crores out of the huge amounts received from a Canadian company to the first respondent company by way of parking measure and not towards investment or advance share capital. The conversion of Rs. 25 crores into share capital of first respondent company was a deliberate manipulation, which resulted in attachment of the said sum by the Income Tax Department for the dues and penalties of the Company. Thus, the Company lost its substratum and the main business of the Company has become incapable of being performed due to the huge liabilities incurred and illegalities committed by the Company.
• The authorized share capital of the Company has been increased from Rs. 27 crores to 53 crores and the allotment of shares of Rs. 25 crores has been made in October 2004, without meeting the requirements of the Act and notice to the petitioner.
• The Second respondent and his nominees failed to discharge the liabilities, forming part of the consideration for the transfer of shares, in terms of the agreement dated 19.07.2004. The petitioner was constrained to make various payments as on 31.07.2005 on behalf of the Company an aggregate sum of Rs. 2.96 crores.
• The directors have disregarded several statutory provisions of the Act regarding convening of meetings, maintenance of books of account, allotment of shares and appointment of directors. The statutory records of the Company are not available at the registered office of the Company, as confirmed by the Commissioner appointed by the Bench.
• The affairs of the Company are being conducted with an intention to defraud its creditors, members or any other persons.
6. The petitioner, in the backdrop of his complaint in the affairs of the Company has claimed the following reliefs:
(i) to supercede the present board of directors and appoint an independent chairman and other directors to manage the affairs of the Company;
(ii) to declare the increase in share capital from Rs. 27 crores to Rs. 53 crores made on 28.10.2004 as illegal and void ab initio;
(iii) to cancel the allotment of shares of Rs. 25 crores made on 28.10.04; direct the consequent reduction of share capital under Section 100 of the Companies Act, 1956 and rectify suitably the register of members of the Company;
(iv) to declare all proceedings and resolutions passed at the meeting held on 28.10.2004 as void and inoperative and declare any further resolutions that may be passed either at board meeting or general meeting as void and inoperative;
(v) to direct rectification of the register to include S. Kuppuswamy and T.B. Narayanaswamy as members of the first respondent company, holding one share each and by reducing the two shares from the total share holding of the petitioner herein;
(vi) to rectify the register of members protecting the petitioner from the effect of non-compliance with the requirement of Section 45.
The relevant terms and conditions of the agreement dated 19.07.2004, containing arbitration clause are as under:
• The issued, subscribed and paid-up capital of the Company of Rs. 300,00,000/- as at 19.07.2004 consisting of 30,00,000 equity shares of Rs. 10/- each shall be increased to Rs. 27,00,00,000/- consisting of 2,70,00,000 equity shares of Rs. 10/- each. Accordingly, the authorized capital of the Company shall be increased, on receipt of the requisite fee from the second respondent payable to the Registrar of Companies for the increase of such authorized capital, (Clause 1).
• The Company shall allot 2,40,00,000 equity shares of Rs. 10/- each fully paid at par to the petitioner against book debts due by the Company to the petitioner (Clause 2).
• The petitioner shall sell in favour of the second respondent and or his nominees 90% of the total paid-up share capital of the Company, viz., 2,43,00,000 of Rs. 10/- each for a total consideration of Rs. 2,31,50,000/-within 30 days of the date of execution of the agreement (Clause 3).
• The Company shall hold a meeting of its board of directors immediately after registering the transfer of shares in terms of Clause 3 hereabove so as to reconstitute the board in accordance with the second respondent's intent (Clause 4).
• The second respondent shall be responsible, after takeover of 90% ownership, control and management of the Company, for the finance, operations and management of the Company (Clause 5).
• The second respondent shall take over the business, assets and liabilities of the Company more fully set out in the schedules forming part of the agreement. The second respondent shall discharge all liabilities, which are outstanding as on the date of the agreement. The petitioner must be relieved of all its guarantee obligations in respect of the Company within 180 days from the date of the second respondent taking over the management of the Company (Clauses 6, 7 & 8).
• The petitioner and or the second respondent shall communicate to the Company's bankers about the proposed change in ownership and management of the Company on execution of the agreement and about the arrangements made to discharge the Company's dues to them (Clause 9).
• The second respondent's total cost of take over of the Company shall not exceed Rs. 36,00,00,000/-, subject to the additional sum as agreed between the parties. (Clause 12).
The petitioner is at liberty to sell its remaining 10% shareholding in the Company to the second respondent and or his nominees for a consideration mutually agreeable between them. The second respondent is agreeable in principle of the petitioner's desire. (Clause 15).
• In the event of any dispute arising out of the agreement relating to claims and counter-claims, they shall be referred to arbitration under the Indian Arbitration Law in the prescribed manner (Clause 21).
• The Company shall not open any new bank account, until the acquisition of controlling interest by the second respondent in the Company is completed and notified to the concerned banks (Clause 23).
• The second respondent shall indemnify the petitioner against all losses, damages, claims or demands that the petitioner may suffer on account of failure by the second respondent to discharge his obligations under the agreement (Clause 23A).
A careful scrutiny of the agreement dated 19.07.2004 reveals that it extensively deals with the terms and conditions for disposing of the petitioner's shareholding, controlling and management interest in the Company in favour of the second respondent. Thus, the agreement envisages the rights and obligations of the parties in relation to the taking over of the business, assets and liabilities of the Company by the second respondent. The grievances complained of in the company petition in relation to (a) failure of the second respondent to maintain the minimum statutory number of seven members in the Company; (b) pledge of the properties and assets of the Company in violation of the Foreign Exchange and Management Act; (c) promotion of a group of companies for siphoning of the Company's funds; (d) increase of authorized share capital from Rs. 27,00,00,000 to Rs. 53,00,00,000; (e) further allotment of shares of Rs. 25,00,00,000 without meeting the requirements of the Act; (f) loss of substratum of the Company on account of the attachment, by the Income Tax Department, of the bank accounts/deposits amounting to Rs. 25,00,00,000 parked illegally by the second respondent; and (g) several statutory violations committed by the respondent group, are neither directly covered by nor emanated from the agreement dated 19.07.2004. These purported charges did arise independent of the agreement and after taking control and management of the Company by the second respondent, of course, in terms of the agreement, in which case, the decision in R. Balakrishnan v. Vijaya Dairy and Farm Products (P) Ltd. (supra), where the grievances were found flowing from an agreement will be of little assistance to the respondents. Similarly, the case laws in Airtouch International (Mauritius) Limited v. RPG Cellular Investments and Holdings Private Limited and Pinaki Das Gupta v. Maadhyam Advertising Private Limited, wherein all the issues raised in the petition having directly arisen out of the agreement, will have no application to the facts of the case before me. The circumstances under which this Board dismissed the application under Section 8 of the Act, 1996 in the matter of Premier Automobiles Ltd. v. Fiat India Private Limited do not exist in the present case. The petitioner complained of the breach committed by the second respondent in discharging the liabilities of the Company taken over by him in terms of the agreement and in incurring an aggregate amount of Rs. 2.95 crores by it as on 31.07.2005 for and on behalf of the Company, but no relief has been claimed before the CLB in this behalf. The petitioner, on the other hand made a claim of Rs. 31.74 crores against the second respondent spent by it in relation to operations and management of the Company and damages of Rs. 5 crores for breach of the contract, which are covered under Clauses 5 and 23 A respectively of the agreement. These claims made by the petitioner before the arbitral tribunal are not urged before the CLB, in which case, the arbitral tribunal will adjudicate only these specific issues on which reference has been made by the petitioner. If the allegations of oppression and mismanagement set out in the company petition can be adjudicated without reference to the terms of the agreement, then the question of referring the parties to arbitration does not arise even if the Agreement covers the same issue before the CLB. Further, the reliefs claimed in the company petition cannot be granted by an arbitrator, which are available under the provisions of Sections 397 and 398 read with Sections 402 and 403 from the CLB alone and the statutory jurisdiction of the CLB can neither be ousted even by the consent of the parties as held in M/s Lammertz Industrienadel GmbH v. Altek Lammertz Needles Limited. While it is left to the CLB whether the allegations are acts of oppression and mismanagement without recourse to the agreement and mould appropriate reliefs with a view to bringing to an end the acts complained of, the arbitral tribunal would deal with reference to the specific terms of the agreement, especially when the jurisdiction and scope of powers of the CLB and those of the arbitral tribunal are quite different. The statement of claims filed before the arbitral tribunal deals with the rights and obligations of the parties to the agreement dated 19.07.2004 in relation to disposal of the petitioner's (C.P.50/2005) shareholding, controlling and management interest in the Company in favour of the second respondent. The petitioner claims, in the statement of claims that it has fulfilled all its obligations, while the second respondent (C.P.50/2005) has not fulfilled his part of obligations under the agreement in discharging the Company's liabilities and relieving the petitioner from its guarantee obligations, as per schedules to the agreement on the respective due dates. The various acts done as well as undone pursuant to the agreement are elaborately dealt in the statement of claims. The statement of claims further deals with (a) failure to discharge the consideration in terms of the agreement for taking over the Company; (b) remittance of Rs. 25 crores purportedly brought into the Company by the eighth respondent, a nominee of the second respondent by way of share advance, which was subsequently attached by the Income Tax department; (c) pledge of original title deeds and share certificates of the Company in violation of the Foreign Exchange and Management Act; (d) claim for Rs. 31.74 crores incurred by the petitioner after execution of the agreement towards operations and management of the Company and (e) claim for damages of a sum of Rs. 5 crores on account of breach of the agreement. Thus, the statement of claims filed by the petitioner before the arbitral tribunal deals with the grievances of the petitioner on account of non-fulfilment of the terms and conditions of the agreement by the second respondent, but the petitioner confines its reliefs only for recovery of the amounts spent for and on behalf of the Company and for damages. In this context the relevant recitals contained both in the statement of claims and the counter filed before the arbitral tribunal have to be borne in mind. The allegations forming part of para 5.2 of the statement of claims read as under:
The first claimant had preferred C.P. No. 50 of 2005 before the Company Law Board, Chennai for certain statutory reliefs different from those prayed for in the above claim. The relief claimed under the C.P is a statutory relief whereas the one claimed herein is a contractual relief to settle disputes between parties and to seek damages. Moreover, the parties to the C.P are different from the parties herein." In reply to these averments the respondents before the arbitral tribunal merely contended that, "The allegations in para 5 are largely matters of record... "(para 15). The respondents further reported in response to the allegations made in the statement of claims about the appointment of Commissioner by the CLB in the company petition for authentication of the Company's statutory records, that "The proceedings before the Company Law Board are not relevant to these proceedings" (arbitration). It is absolutely relevant to point out that the respondents apart from seeking dismissal of the claims of the petitioner before the arbitral tribunal, claims from the petitioner an amount of Rs. 8.83 crores together with future interest at the rate of 18%. It is, therefore, far from doubt that the matter in issue and reliefs in both the proceedings are not one and the same. There is no material to show that the respondents are taking the stand before the arbitral tribunal that the acts complained of before the CLB are bonafide disputes directly arising out of or in connection with the agreement dated 19.07.2004, attracting the provisions of Section 8 of the Act, 1996. Further, Clause 21 of the agreement provides that in the case of disputes arising out of the agreement relating to claims and counter claims, the parties shall be referred to arbitration under the Indian Arbitration Law. The subject- matter of the company petition not having flown from the agreement, cannot be adjudicated by the arbitral tribunal. In view of the differences in the disputes raised and the reliefs claimed before the arbitral tribunal as well as the CLB, difference in the nature of powers and the authority under Section 8(3) of the Act, 1996 empowering the arbitrator to make an award even during the pendency of an application under Section 8, there is no scope, in my view for any conflict in the decisions of the arbitral tribunal and the CLB. Further, the decision in the arbitration proceedings, cannot non-suit the company petition, thereby, the test for applicability of Section 10 of the Code of Civil Procedure, 1908, as laid down in Canara Bank v. Scanomax India Limited (supra) remains not satisfied.
It is on record that M/s Hindcorp Resorts Private Limited (HRPL), a party to the agreement is admittedly not a party to the company petition and the petitioner and HRPL are the claimants before the arbitral tribunal, enforcing their rights under the agreement against the second respondent and the Company, HRPL is unconcerned with the acts complained of in the company petition. Similarly, the respondents 3 to 10 in the Company are not parties to the agreement. The respondents 3 & 4 were reportedly in connivance with the second respondent, involved in the promotion of a group of companies with cross-holdings acquired or acquired for systematic siphoning of funds and assets of the Company, and for illegally parking large amounts with the Company. The respondents 5, 6, being directors of the Company allegedly breached their fiduciary obligations by pledging the properties and assets of the Company in violation of the provisions of Foreign Exchange Management Act and by disregarding statutory provisions of the Act. An investment of Rs. 25 crores reportedly brought in by the seventh respondent, a nominee of the second respondent (para 6.22 in page 17 of company petition) and the allotment of impugned shares in favour of the eighth respondent are seriously challenged by the petitioner. The reliefs for these alleged grievances, when established can be appropriately remedied, in terms of Section 402 before which, among others, the respondents 3 to 8 must be afforded an opportunity of hearing in these matters, to meet the principles of natural justice. It cannot, therefore, be said that the respondents 3 to 8 are not formal parties to the company petition. Thus, the main parties are not found to be the parties to the agreement. I, therefore, do not find commonality of the main parties to company petition and the agreement. Where the subject-matter of the company petition lies outside the agreement containing arbitration clause and also between some of the parties who are not parties to the arbitration agreement, the application of Section 8 does not apply, on the principles enunciated by the apex court in Sukanya Holding (P) Ltd. v. Jayesh H. Pandey (supra) and followed by this Board in Machino plastics Ltd. v. Caparo Maruti Ltd. (supra).
In view of my foregoing conclusions, the prayer of the applicants to refer the parties before the CLB to arbitration in terms of Section 8 of the Act, 1996 does not merit any consideration. Accordingly, the applications are rejected. The respondents will file their counter statement by 20.01.2006 and rejoinder to be filed by 07.02.2006. The company petition will be heard on 15.02.2006 at 2.30 p.m.