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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.

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.

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: