Madrasdated High Court · 2006

applicants to refer the parties to arbitration in terms of Section 8 ofthe Act, 1996 and dismissed the C.A. Nos. 154, 155 and 160 of 2005.Aggrieved by this order of the CLB, the present appeal.2.For the purpose of easy comprehension, the parties are referredto as per their ranking in the Company Petition.3.According to the petitioner in the Company Petition, the facts innutshell, which led to the petition are that the first respondent Companyincorporated in May 1994 as a 100% subsidiary of the petitioner for thesole purpose of establishing, maintaining and conducting a Golf course-cum-beach resort could not achieve its main object and therefore, thepetitioner entered into an agreement with the second respondent on19.07.2004, regarding the taking over of the Company. Accordingly, thesecond respondent acquired 90% shareholding, controlling and managementinterest in the Company for a lump sum consideration of Rs.2.43 crores, besides agreeing to discharge the debts and liabilities due by the Companyto the petitioner and several others and relieve the petitioner of itsguarantee obligations in respect of the Company within the stipulatedtime. Further, the liabilities taken over by the second respondent remainundischarged. However, pursuant to acquisition of the shares by thesecond respondent, the petitioner's nominees resigned from the office ofDirector and the respondents 3 and 4, being nominees of the secondrespondent were inducted on the Board of Directors of the Company. It isthe grievance of the petitioner in Company Petition that ever since takingover the control and management of the Company in August 2004 by virtue ofthe agreement dated 19.07.2004, the respondents 2 to 6 have beenreportedly indulging in acts of oppression and mismanagement in theaffairs of the Company and therefore, the petitioner invoked thejurisdiction of Sections 397 and 398 of the Act and prayed the CLB toallow the Company Petition as prayed for.4.The prayer sought for in the Company Petition are:a.to supersede the present Board of Directors and consequentlyappoint an independent Chairman and such other Directors,b.to declare the increase in share capital from Rs.27 crores toRs.53 crores made on 28.10.2004 as illegal and void ab initio.c.to cancel the allotment of shares of Rs.25 crores made on28.10.2004 and direct the consequent reduction of share capitalunder Section 100 of the Companies Act, 1956,d.to declare all proceedings and resolutions passed at the meetingheld on 28.10.2004 as void and inoperative and also declare anyfurther resolutions that may be passed either at Board Meetingor General Meeting as void and inoperative,e.to rectify the Register of Members suitably consequent to thecancellation of the allotment of shares of Rs.25 crores on28.10.2004, https://hcservices.ecourts.gov.in/hcservices/ f.to further direct rectification of Register to include Mr. S.Kuppuswamy and Mr. T.B. Narayanaswamy as members as the firstrespondent Company holding one share each and by reducing thetwo shares from the total share holding of the petitioner and g.to further rectify the Register of Members as an interim measureso that the petitioner is fully protected from the effect ofSection 45 and h.to appoint a Commissioner to visit the Registered Office of theCompany and such other offices to inspect the records and booksof the Company, to authenticate the Minutes Book of the Board ofDirectors, the Minutes Book of the General Meetings, ShareRegister and other statutory records situated or which ought tobe situated at the Registered Office of the Company.5.The appellants who were the applicants in C.A. Nos. 154, 155 and160 of 2005 contended before the CLB and according to them, the CompanyPetition is not maintainable and it has to be dismissed in limine and inview of the acts complained of in the Company Petition are covered by theagreement, which contains arbitration clause, the parties must be referredto arbitration, without adjudicating the disputes by the CLB. It is theircase that the petitioner in the Company Petition, pursuant to theagreement, transferred 90% of its shares in the Company on receipt ofRs.2.43 crores in favour of the second respondent (KCP) and the petitionerhas to sell the remaining 10% of its holding in the Company to the secondrespondent or his nominees and it cannot have any grievance in the affairsof the Company. The underlying object of the agreement is that thepetitioner would cease to hold any shares in the Company and is notconcerned with the Company. The terms of the agreement dated 19.07.2004have not been incorporated in the Articles of Association of the Company.It has been incorporated as early as in the year 1994 and the petitionercould not carry on the business in terms of its main object all theseeleven years. The Company could not achieve its main object, even afterentering into the agreement with the petitioner. It is not fair on thepart of the petitioner to expect any positive achievement immediately onentering into the agreement. If, in any proceedings, the maintainabilityitself is being seriously questioned, it is appropriate that the Courtshould first consider and decide the question of maintainability, especially when it would go to the root of the matter.6.The common prayer of the appellants herein in the three CompanyApplications is to admit those applications and direct the parties tosettle their disputes through the arbitration forum chosen by them anddismiss the Company Petition as not maintainable both on law as well as onfacts.7.On analysing the statements in the Company Petition and theapplications made and the pleadings therein and upon perusing the materialevidence and the submission made before it, the CLB held that the prayer https://hcservices.ecourts.gov.in/hcservices/ of the applicants to refer the parties before the CLB to arbitration interms of Section 8 of the Act, 1996 does not merit any consideration andaccordingly, rejected the applications directing the respondents to filetheir counter statement by 20.01.2006 and rejoinder by 07.02.2006 andposted the Company Petition for further hearing on 15.02.2006 at 2:30 p.m.8.Heard Mrs. Elizabeth Seshadri for M/s. Iyer and Thomas, learnedcounsel for the appellants and Mr. Arvind P. Datar, learned Senior Counselfor Mr. Muizz Ali, learned counsel for the respondent.9.Mrs. Elizabeth Seshadri, learned counsel for the appellants hascontended that:a.the order of CLB is contrary to Law and has been passed withoutdue consideration of all relevant facts presented before theBench, without application of mind to the legal provisionsapplicable to the facts of the case and by not applying theapplicable law so as to meet the legislative intendment,b.the CLB ought to have seen that the Company Petition that hasbeen filed by the respondent is a vexatious petition which isnot maintainable in law and the respondent herein is guilty offorum shopping and hence, the CLB ought to have rejected theCompany Petition in limine,c.the petition has been filed on the basis of an agreement dated19.07.2004 which contains an arbitration clause whereby partieshad agreed to refer all and any disputes arising out of theagreement to arbitration,d.the relief sought for in the Company Petition in the case ofoppression and mismanagement without any substantial issueinvolved in the petition is contrary to the provisioncontemplated under Section 8 of the Act, 1996 as the issuesinvolved are disputes which have to be referred to arbitration,e.the CLB has failed to appreciate the fact that by virtue of thesaid Arbitration Agreement between the parties, the matterscomplained of ought to have been referred to the ArbitrationTribunal which had been constituted and it was a fact that theCLB was duly informed about the stage of the arbitrationproceedings. Section 8 of the Act, 1996 requires any judicialauthority before which an action is brought in a matter which isthe subject of an arbitration agreement to refer the parties toarbitration and the only requirement in this regard relates tothe application to be made by a party in the proceedings beforethe judicial authority praying before the judicial authority torefer the matter complained of in that proceedings toarbitration,f.the CLB, being a judicial authority, is bound to act accordingto the mandatory direction contained in Section 8 of the Act, https://hcservices.ecourts.gov.in/hcservices/ 1996 by admitting the application, taking note of the substanceof the matter complained of and directing the parties to referthe dispute to the arbitrators,g.Clause 23 of the agreement dated 19.07.2004 which deals with thearbitration matter provides that KSL and SPIL shall not effectany change to the equity structure of SPIL except strictly asprovided in the said agreement and the CLB has not taken note ofthat clause which squarely covers the impugned allotment ofshares covered by the petition before the CLB. There is nodoubt that the Arbitration Agreement, by virtue of the aboveclause, deals with any matter due to which any change hasoccurred to the equity structure of SPIL,h.the ratio of the Supreme Court decision in Sukanya HoldingsPrivate Limited Vs. Jayesh H. Pandey reported in (2003) 5 SCC531, has been mechanically followed by the CLB,i.as part of the obligation of the agreement only Mr. K.C.Palaniswamy, the applicant in C.A. NO.155 of 2005, had organizedreceipt of funds to the tune of Rs.25 crores into SPIL and inpursuance of the agreement only and to further covenants of theagreement only, the money was brought against which the impugnedissue of shares was made by SPIL and therefore, to state thatthe subject matter is not covered by the agreement would bepatently wrong,j.if KCP had organised the inflow of funds in the form of securedor other loan into SPIL, such party would have been a creditorof SPIL and he would be having better enforceable rights andwould be in a better position than KSL. k.the Arbitration Tribunal constituted under the Act, 1996, hasall the powers including to test the validity or otherwise of anagreement and in effect, is a substitute for a Civil Courtthough it functions and the arbitrator could go the validity ofthe agreement and declare in a given case that the agreement isnull and void merely because the aggrieved shareholders couldmove the CLB under Sections 397 and 398 of the Act,l.the CLB was bound to take note of the fact and apply theprinciples laid down in the case of R. Balakrishnan Vs. VijayDairy & Farm Products Private Limited reported in (2005) 59 SCL667,m.the CLB has committed a manifest error in judgment by statingthat where allegations of oppression and mismanagement set outin the Company Petition can be adjudicated without reference tothe terms of the agreement, the question of referring theparties to arbitration does not arise even if the agreementcovers the same issue before the CLB, https://hcservices.ecourts.gov.in/hcservices/ n.the CLB has stated that the claims made by the ArbitrationTribunal are not urged before it and therefore, the ArbitrationTribunal will adjudicate only those issues on which referencehas been made by the petitioner. Assuming that the issuesbefore the CLB are not canvassed before the ArbitrationTribunal, the Tribunal will take up only those matters whichhave been specifically referred to it and it must be rememberedthat under Section 8 of the Act, 1996, what the judicialauthority is supposed to do is to refer the parties toarbitration, even if at a time when arbitration has not beencommenced by the parties,o.if the parties were allowed to go on agitating matters arisingout of one single agreement before multiple forum, the samewould be opposed to public policy and would lead to disastrousconsequences andtherefore, prayed that the appeal has to be allowed on the above grounds.10.In support of her contentions, the learned counsel for theappellants has relied on:a.the decision of the Supreme Court reported in AIR 2003 SC 2881in the case of Pinkcity Midway Petroleums in which paragraph 14reads as under:"This Court in the case of P.A. Gajapathy Raju and othersVs. P.V.G. Raju (dead) & others) has held that the languageof Section 8 is peremptory in nature. Therefore in caseswhere there is an arbitration clause in the agreement, itis obligatory for the Court to refer the parties toarbitration in terms of their arbitration agreement andnothing remains to be decided in their original actionafter such an application is made except to refer thedispute to an arbitrator. Therefore, it is clear that, ifas contended by a party in an agreement between the partiesbefore the Civil Court, there is a clause for arbitration, it is mandatory for the Civil Court to refer the dispute toan arbitrator. In the instant case, the existence of anarbitral clause in the agreement is accepted by both theparties as also by the Courts below. The applicabilitythereof is disputed by the respondent and the said disputeis accepted by the courts below. Be that as it may, at thecost of repetition, we may again state that the existenceof the arbitration clause is admitted. If that be so, inview of the mandatory language of Section 8 of the Act, theCourts below ought to have referred the dispute toarbitration.”b.The decision of the Supreme Court in the case of Konkan RailwayCorporation Ltd. Vs. Rani Construction Pvt. Ltd. (AIR 2002 SC778) in which it was held that Section 16 of the Act, 1996empowers the Arbitration Tribunal to rule on its own https://hcservices.ecourts.gov.in/hcservices/ jurisdiction including to rule on any objection with respect tothe existence or the very validity of the arbitration agreementand therefore, it is not for the Courts to decide on theapplicability of the arbitration clause to the facts of thecase. The Courts are obligated to leave it to the ArbitrationTribunal to determine the issue of applicability of thearbitration clause.c.The decision of the Supreme Court in the case of P. AnandGajapathi Raju & Others Vs. P.V.G. Raju (dead) & others (2000(4) SCC 539) in which it was held that the language of theSection 8 of the Act, 1996 is quite unambiguous and peremptoryin nature. In case where there is an arbitration clause in theagreement between the parties, it is obligatory on the part ofthe Court to refer the parties to arbitration.11.The learned counsel for the appellants has placed further reliance on:a.The decision of the Company Law Board in the case of Pinaki DasGupta Vs. Maadhyam Advertising Pvt. Limited & Others (2003 114CC 346) wherein it was held that the matters covered in aproceeding under Sections 397 and 398 are not outside thepurview of the provisions of Section 8 of the Act, 1996, if therequirements of the Section are satisfied.b.the decision of the Company Law Board in the case of Air TouchInternational (Mauritius) Limited Vs. RPG Cellular Investmentsand Holdings Pvt. Ltd. (CLB) 2004 121 CC 647 wherein it was heldthat when a party is able to establish that there does exist abona fide dispute that has arisen from an existing arbitrationagreement and that the Arbitration Tribunal can settle it byappropriate reliefs, the Company Law Board and any otherjudicial authority will have to refer the parties to arbitration.12.Per contra, Mr. Arvind P. Datar, learned Senior Counselrepresenting Mr. Muizz Ali, learned counsel for the respondent who was thepetitioner in the Company Petition has contended that:a.the alleged acts of oppression and mismanagement in the affairsof the Company and the essential terms and conditions of theagreement dated 19.07.2004 governing the rights and obligationsof the parties thereto must be examined and the sole object ofacquiring the Company by the second respondent is to use it as amedium for parking illegal funds, to exploit its real estate bypledging the title deeds for his personal benefit and to divertillegal funds received from abroad for personal gains. Thedirectors, being trustees as regards the assets of the Company, have completely breached their fiduciary obligations by notutilizing them for the Company's benefit,b.the second respondent pledged all the share certificatesaccounting for 90% of the shares and original title deeds of the https://hcservices.ecourts.gov.in/hcservices/ Company with a foreign company in violation of the provisions ofthe Act and Foreign Exchange and Management Act,c.pursuant to transfer of shares in favour of the secondrespondent and his nominees in terms of the agreement, there areonly a total number of six members in the Company including thepetitioner. The second respondent has not chosen to ensure theminimum number of seven members which is violative of Section 45of the Act, compelling the petitioner to transfer, out of itsholding, one share each to S. Kuppuswamy and T.B. Narayanaswamyto maintain the minimum statutory number of seven members,d.the respondents 2 to 4, along with one Gopinath Athappan, son ofthe third respondent were involved in the promotion of a groupof Companies with cross-holdings incorporated or acquired forsiphoning of the Company's funds and assets and diverting Rs.25crores out of the huge amounts received from a Canadian Companyto the first respondent by way of parking measure and nottowards investment or advance share capital. The conversion ofRs.25 crores into share capital of first respondent company wasa deliberate manipulation, which resulted in attachment of thesaid sum by the Income Tax Department for the dues and penaltiesof the Company. Thus, the Company lost its substratum and themain business of the Company has become incapable of beingperformed due to the huge liabilities incurred and illegalitiescommitted by the Company,e.the authorised share capital of the Company has been increasedfrom Rs.27 crores to Rs.53 crores and the allotment of shares ofRs.25 crores has been made in October 2004, without meeting therequirements of the Act and notice to the petitioner,f.the second respondent and his nominees failed to discharge theliabilities, forming part of the consideration for the transferof shares, in terms of the agreement dated 19.07.2004 and thepetitioner was constrained to make various payments as on31.07.2005 on behalf of the Company, an aggregate sum of Rs.2.96crores,g.the Directors have disregarded several statutory provisions ofthe Act regarding convening of meetings, maintenance of books ofaccount, allotment of shares and appointment of directors andthe statutory records of the Company are not available at theRegistered Office of the Company, as confirmed by theCommissioner appointed by the Bench andh.the affairs of the Company are being conducted with an intentionto defraud its creditors, members or any other persons.13.In respect of his contention, the learned Senior Counsel for therespondent has relied on the decisions of the Supreme Court reported in https://hcservices.ecourts.gov.in/hcservices/ (2003) 5 SCC 531 (Sukanya Holdings (P) Limited Vs. Jayesh H. Pandya) and(1999) 5 SCC 688 (Haryana Telecom Limited Vs. Sterlite Industries (India)Limited).14.I have carefully considered the rival submissions made by thelearned counsel on either side and the issue which is for considerationbefore me is whether the decision of the CLB in rejecting the CompanyApplications in the Company Petition for referring the matter toarbitration under Section 8 of Act, 1996 in the light of the subjectmatter of agreement dated 19.07.2004 is correct or not.15.Before considering the above issue, it would be useful andappropriate to analyse the provisions contemplated under Section 8 of theAct, 1996 which are having utmost relevance and importance to be borne inview to decide the issue. Section 8 of the Act, 1996 reads as under:"A judicial authority before which an action is brought ina matter which is the subject of an arbitration agreementshall, if a party so applies not later than when submittinghis first statement on the substance of the dispute, referthe parties to arbitration. The application referred to in sub-section (1) shall not beentertained unless it is accompanied by the originalarbitration agreement or a duly certified copy thereof. Notwithstanding that an application has been made undersub-section (1) and that the issue is pending before thejudicial authority, an arbitration may be commenced orcontinued and an arbitral award made."16.By virtue of Section 8 of the Act, 1996, it is mandatory for thejudicial authority, before which an action has been brought in a matter, being the subject matter of an arbitration agreement, to refer the partiesfor arbitration provided, (a) the application under this Section is madeany time before submitting the "first statement on the substance of thedispute" and (b) the judicial authority is satisfied that there is a validarbitration agreement. Sub-section (3) provides that an arbitration maybe commenced or continued and an arbitral award be made in spite of (a)application made under Sub-section (1) and (b) pendency of the issuebefore the judicial authority.17.It is seen that the CLB, before rejecting the CompanyApplications, has given due consideration to the facts and circumstancespleaded before it and the following decisions of the Supreme Court:a.Airtouch International (Mauritius) Limited Vs. RPG CellularInvestments & Holdings Private Limited (2004) (Volume 121) CC 647b.Canara Bank Vs. Scanomax India Limited (2000 99 CC 285 https://hcservices.ecourts.gov.in/hcservices/ c.Pinaki Das Gupta Vs. Maadhyam Advertising Private Limited (2003)Vol. 114 CC 346d.R. Balakrishnan Vs. Vijay Dairy Farm Products (P) Limited (2005)59 SCL 66718.Further, the CLB has gone through the relevant terms of theagreement dated 19.07.2004 containing arbitration clause as under:a.The issued, subscribed and paid-up capital of the Company ofRs.3 crores as at 19.07.2004 consisting of 30,00,000 equityshares of Rs.10/- each shall be increased to Rs.27 croresconsisting of Rs.2,70,00,000 equity shares of Rs.10/- each. Accordingly, the authorised capital of the Company shall beincreased, on receipt of the requisite fee from the secondrespondent payable to the Registrar of Companies for theincrease of such authorized capital (Clause 1)b.The Company shall allot 2,40,00,000 equity shares of Rs.10/-each fully paid at par to the petitioner against book debts dueby the Company to the petitioner (Clause 2)c.The petitioner shall sell in favour of the second respondent andor his nominees 90% of the total paid-up share capital of theCompany, viz., 2,43,00,000 of Rs.10/- each for a totalconsideration of Rs.2,31,50,000/- within 30 days of the date ofexecution of the agreement (Clause 3)d.The Company shall hold a meeting of its Board of Directorsimmediately after registering the transfer of shares in terms ofClause 3 hereabove so as to reconstitute the Board in accordancewith the second respondent's intent (Clause 4)e.The second respondent shall be responsible, after takeover of90% ownership, control and management of the Company, for thefinance, operations and management of the Company (Clause 5)f.The second respondent shall take over the business, assets andliabilities of the Company more fully set out in the schedulesforming part of the agreement. The second respondent shalldischarge all liabilities, which are outstanding as on the dateof the agreement. The petitioner must be relieved of all itsguarantee obligations in respect of the Company within 180 daysfrom the date of the second respondent taking over themanagement of the Company (Clauses 6,7 & 8).g.the petitioner and or the second respondent shall communicate tothe Company's bankers about the proposed change in ownership andmanagement of the Company on execution of the agreement andabout the arrangements made to discharge the Company's dues tothem (Clause 9) https://hcservices.ecourts.gov.in/hcservices/ h.the second respondent's total cost of take over of the Companyshall not exceed Rs.36,00,00,000/-, subject to the additionalsum as agreed between the parties (Clause 12)i.the petitioner is at liberty to sell its remaining 10%shareholding in the Company to the second respondent and or hisnominees for a consideration mutually agreeable between them. The second respondent is agreeable in principle of thepetitioner's desire (Clause 15).j.In the event of any dispute arising out of the agreementrelating to claims and counter-claims, they shall be referred toarbitration under the Indian Arbitration Law in the prescribedmanner (Clause 21)k.The Company shall not open any new bank account, until theacquisition of controlling interest by the second respondent inthe Company is completed and notified to the concerned banks(Clause 23)l.the second respondent shall indemnify the petitioner against alllosses, damages, claims or demands that the petitioner maysuffer on account of failure by the second respondent todischarge his obligations under the agreement (Clause 23A).19.The CLB has further gone through the agreement dated 19.07.2004and has given due consideration to the terms and conditions for disposingof the petitioner's shareholding, controlling and management interest inthe Company in favour of the second respondent. The CLB has also observedthat the agreement envisages the rights and obligations of the parties inrelation to the taking over of the business, assets and liabilities of theCompany. It is found by the CLB that the grievances complained of in theCompany Petition in relation to (a) failure of the second respondent tomaintain the minimum statutory number of seven members in the Company (b)pledge of the properties and assets of the Company in violation of theForeign Exchange and Management Act, (c) promotion of a group of Companiesfor siphoning of the Company's funds, (d) increase of authorised sharecapital from Rs.27 crores to Rs.53 crores, (e) further allotment of sharesof Rs.25 crores without meeting the requirements of the Act, (f) loss ofsubstratum of the Company on account of the attachment by the Income TaxDepartment, of the bank accounts/deposits amounting to Rs.25 crores parkedillegally by the second respondent and (g) several statutory violationscommitted by the respondent group are neither directly covered by noremanated from the agreement dated 19.07.2004.20.The order of the CLB further shows that the purported charges didarise independent of the agreement and after taking control and managementof the Company by the second respondent, of course, in terms of theagreement in which case, the decision in R. Balakrishnan Vs. Vijay Dairy &Farm Products (P) Ltd. where the grievances were found flowing from anagreement will be of little assistance to the respondents. Similarly, the https://hcservices.ecourts.gov.in/hcservices/ case laws in Airtouch International (Mauritius) Limited Vs. RPG CellularInvestments and Holdings Private Limited and Pinaki Das Gupta Vs. MaadhyamAdvertising Private Limited wherein all the issues raised in the petitionhaving directly arisen out of the agreement, did not have application tothe facts of the case before the CLB. Further, the CLB has observed thatthe facts and circumstances in the matter of Premier Automobiles Ltd. Vs.Fiat India Private Limited do not exist in the present case andaccordingly dismissed the Applications under Section 8 of the Act, 1996and this observation of the CLB is to be taken note of. 21.The Supreme Court, in the case of Sukanya Holdings (P) Ltd. Vs.Jayesh H. Pandey, while interpreting Section 8 of the Act, 1996,enunciated the following among other principles:a.The suit should be in respect of “a matter” which the partieshave agreed to refer and which comes within the ambit ofarbitration agreement. Where, the subject matter of the suitlies outside the arbitration agreement and also between some ofthe parties who are not parties to the arbitration agreement, there is no question of application of Section 8. The entiresubject of the suit should be subject to the arbitrationagreement.b.There is no provision in the Act, 1996 suggesting that when thesubject matter of the suit includes subject-matter of thearbitration agreement as well as other disputes, the matter isrequired to be referred to arbitration. There is also noprovision for splitting the cause or parties and referring thesubject-matter of the suit to the arbitration.c.There is no provision dealing with the situation where someparties to the suit are not parties to the arbitration agreement.22.Further, the Supreme Court in its decision reported in (1995) 5SCC 688 (Haryana Telecom Limited Vs. Sterlite Industries [India] Limited)has held in paragraphs 4 and 5 as under:“4.Sub-section (1) of Section 8 provides that thejudicial authority before whom an action is brought in amatter, will refer the parties to arbitration the saidmatter in accordance with the arbitration agreement. This, however, postulates, in our opinion, that what can bereferred to the arbitrator is only that dispute or matterwhich the arbitrator is competent or empowered to decide.5.The claim in a petition for winding up is not formoney. The petition filed under the Companies Act would beto the effect, in a matter like this, that the Company hasbecome commercially insolvent and, therefore, should bewound up. The power to order winding up of a Company iscontained under the Companies Act and is conferred on theCourt. An arbitrator, notwithstanding any agreementbetween the parties, would have no jurisdiction to order https://hcservices.ecourts.gov.in/hcservices/ winding up of a Company. The matter which is pendingbefore the High Court in which the application was filed bythe petitioner herein was relating to winding up of theCompany. That could obviously not be referred toarbitration and, therefore, the High Court, in our opinion, was right in rejecting the application.”23.In the case on hand, the petitioner complained of the breachcommitted by the second respondent in discharging the liabilities of theCompany taken over by him in terms of the agreement and in incurring anaggregate amount of Rs.2.95 crores by it as on 31.07.2005 for and onbehalf of the Company, but no relief has been claimed before the CLB inthis behalf. The petitioner, in the Company Petition, on the other hand, made a claim of Rs.31.74 crores against the second respondent spent by itin relation to operations and management of the Company and damages ofRs.5 crores for breach of the contract which are covered under clauses 5and 23A respectively of the agreement. These claims made by thepetitioner before the Arbitral Tribunal are not urged before the CLB, inwhich case, the Arbitral Tribunal will adjudicate only these specificissues on which reference has been made by the petitioner. It is furtherseen that if the allegations of oppression and mismanagement set out inthe Company Petition can be adjudicated without reference to the terms ofthe agreement, then the question of referring the parties to arbitrationdoes not arise even if the agreement covers the same issue before the CLB.Further, the reliefs claimed in the Company Petition cannot be granted byan arbitrator, which are available under the provisions of Sections 397and 398 read with Sections 402 and 403 of the Act from the CLB alone andthe statutory jurisdiction of the CLB can neither be ousted even by theconsent of the parties. The Arbitral Tribunal would deal with referenceto the specific terms of the agreement, especially when the jurisdictionand scope of powers of the CLB and those of the Arbitral Tribunal arequite different. When there is an allegation of acts of oppression andmismanagement, the CLB is empowered to deal with it independently. It isalso seen that the statement of claims filed by the petitioner before theArbitral Tribunal deals rights and obligations of the parties to theagreement dated 19.07.2004 in relation to disposal of the petitioner's(C.P. No.50 of 2005) shareholding, controlling and management interest inthe Company in favour of the second respondent. The non-performance ofthe obligations under the agreement in discharging the Company'sliabilities as per the schedules to the agreement on the respective duedates and the various acts done as well as undone pursuant to theagreement, are elaborately dealt in the statement of claims. 24.In the light of the above discussion, it is seen that thestatement of claims filed by the petitioner before the ArbitrationTribunal deals with its grievances on account of non-fulfilment of theterms and conditions of the agreement by the second respondent, but thepetitioner confines its reliefs only for recovery of the amounts spent forand on behalf of the Company and not for damages. In this context, therelevant recitals contained both in the statement of claims and thecounter filed before the Arbitration Tribunal have to be borne in mind. https://hcservices.ecourts.gov.in/hcservices/ In this connection, it is worth mentioning the allegations forming part ofparagraph 5.2 of the statement of claims that the first claimant hadpreferred C.P. No.50 of 2005 before the Company Law Board, Chennai forcertain statutory reliefs different from those prayed for in the aboveclaim. The respondents further reported in response to the allegationsmade in the statement of claims about the appointment of Commissioner bythe CLB in the Company Petition for authentication of the Company'sstatutory records that "the proceedings before the Company Law Board arenot relevant to these proceedings (arbitration)”. It is absolutelyrelevant to point out that the respondents, apart from seeking dismissalof the claims of the petitioner before the Arbitral Tribunal, claim fromthe petitioner, an amount of Rs.8.83 crores together with future interestat the rate of 18%. It can be seen that the statement of claims beforethe Arbitration Tribunal as well as the claimant's relief in C.P. No.50 of2005 are different and distinct and in for the former case, it is adispute arising in terms of the agreement and the statutory obligationsand in the latter case, it is the relief sought for in the breach ofstatutory obligations and other various acts pursuant to the agreement.25.Therefore, the CLB has observed that there is no material to showthat that respondents are taking the stand before the Arbitral Tribunalthat the acts complained of before the CLB are bona fide disputes directlyarising out of or in connection with the agreement dated 19.07.2004,attracting the provisions of Section 8 of the Act, 1996. Further, it isalso worthwhile to refer to Clause 21 of the agreement which provides asunder:"21.In the unlikely case of disputes arising out ofthis agreement relating to claims and counter claims, theparties hereto agree that the same shall be referred toArbitration under the Indian Arbitration Law. Thearbitration shall be by three arbitrators. KCP shall beentitled to appoint one arbitrator. KSL shall be entitledto appoint one arbitrator. The two arbitrators soappointed shall elect the third arbitrator."26.A reading of the above clause makes it very clear that in case ofdisputes arising out of agreement relating to claims and counter claims, the parties shall be referred to arbitration under the Indian ArbitrationLaw. In the instant case, the relief sought for in the Company Petitionunder the provisions of Section 397 and 398 read with Sections 402 and 403of the Act for the various acts which are statutorily not performed likefailure of the second respondent to maintain the minimum statutory numberof seven members in the Company, pledge of the properties and assets ofthe Company in violation of the Foreign Exchange and Management Act, siphoning of the Company's funds, increase of authorised Share Capitalfrom Rs.27 crores to Rs.53 crores, further allotment of shares of Rs.25crores without meeting the requirements of the Act, loss of substratum ofthe Company on account of the attachment, by the Income Tax Department ofthe bank accounts/deposits amounting to Rs.25 crores parked illegally bythe second respondent and several statutory violations committed by the https://hcservices.ecourts.gov.in/hcservices/ respondent group, are neither directly covered by nor emanated from theagreement dated 19.07.2004.27.Therefore, in the light of the statutory obligations, it cannotbe said that the issues involved in the Arbitration Tribunal as well asthe issues coming under Sections 397 and 398 of the Act are two differentissues and therefore, in view of the difference in nature of powers andthe authority under Section 8(3) of the Act, 1996, empowering thearbitrator to make an award even during the pendency of an applicationunder Section 8, there is no scope for any conflict in the decisions ofthe Arbitral Tribunal in respect of the proceedings referred to it. Whereas the scope of Sections 397 and 398 of the Act in dealing with theabove statutory obligations is distinct and the CLB has every jurisdictionto deal with it which is not coming under the purview of Clause 21 of theagreement which only indicates the dispute arising out of the agreementand relating to claims and counter claims. Therefore, in my consideredview, the decision of the CLB holding that the power vested under the Actto deal with the Company Petition preferred under Sections 397 and 398read with 402 and 403 of the Act is available to the CLB to deal with theCompany Petition pending before it. Thus, in the light of the above legalposition, it would not be improper to say that the CLB has rightlyrejected the Company Applications to refer the matter to the ArbitrationTribunal and accordingly, the decisions referred by the CLB in rejectingthe applications are in conformity with the above legal position. In sucha view of the matter, I am of the view that there is no point for thisCourt to interfere with the findings of the CLB and accordingly, theconclusion arrived at by the CLB in rejecting the applications in C.A.Nos.154, 155 and 160 of 2005 is in conformity with the provisions of lawand I have no hesitation in holding that the decision of the CLB isperfectly correct. and accordingly, I dismiss the appeal filed by theappellants herein. 28.However, the Company Petition filed by the respondent herein ispending before the CLB and this Court has only passed an interim order, directing the CLB to proceed with the hearing of the Company Petition, while staying the passing of final orders. In view of the aboveconclusion arrived at by this Court, it would only be proper to direct theCLB to dispose of and pass orders in the Company Petition as expeditiouslyas possible in accordance with law.In the result, the Civil Miscellaneous Appeal is dismissed without anyorder as to costs and the connected C.M.P. is closed.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.cad https://hcservices.ecourts.gov.in/hcservices/ ToThe Additional Principal BenchThe Company Law BoardChennai+ 1 CC To Mr.H.Karthik Seshadri, Advocate SR NO.27384+ 2 CCs To Mr.Feroz Ali, Advocate SR NO. 27370C.M.A. No.1200 of 200628.06.2006amb(co)gp/4.7.