BEFORE THE
COMPANY LAW BOARD, PRINCIPAL BENCH,
CP No 17/2002
In the matter of Companies Act,
1956, Section 397,398 and 399 Read with Section 402 and 403.
And
In the matter of:
Vs.
(Heard on 25.09.2003)
K.C. GANJWAL
1. The above
mentioned petitioners have filed company petition 17/2002 against M/s Caparo
Maruti Ltd and others under Section
397/398 and 399 read with Section 402 and 403 of the Companies Act, 1956. The main reliefs sought in the petition are
as under:-
a) Declare
Respondent No.2 to 6 disqualified of being directors of the company and remove
the Respondnet Nos. 2 to 6 from the directorship of the Respondent Company as
they are acting contrary to their fiduciary relationship of the Respondent
Company.
b) Direct the
Respondent No.2 to 6 to give all details of monetary transaction between the
respondent company and the companies/firms owned and controlled by them and
bring back the money and make good the loss caused to Respondnet No.1 company.
c) Direct the
Respondent No.2 to 6 to render all accounts of the respondent company and bring
back the money siphoned off, into the Respondent company, and pay-off the loans
of the Petitioner Companies.
d) Declare Mr.M.D.
Jindal, the representative of the Petitioner Companies, as permanent Chairman
of the Respondent Company as would be in the best interest of the Respondent
No.1 company.
e) Direct an
independent enquiry into the affairs of the Respondent company
2. The respondent
No.s 1 and 2 companies namely, M/s
Caparo Maruti Ltd.,M/s Caparo India Ltd; have filed present application
No.67/2003 under section 8(1) read with Section 45 of the Arbitration and
Conciliation Act 1996.The case is covered under the provisions of Section 45 of
Arbitration and Conciliation Act 1996.
The respondents have stated in their application that the allegations
made in the petition arise out of the Joint Venture Agreement (hereinafter
referred to as JVA) dated January, 7, 1994 between the petitioner and the
respondent, wherein under Article 11, the parties have agreed to refer and
determine all claims, disputes, controversies, disagreements, all differences
between the parties arising out of or in connection with the agreement by
arbitration. The said Article 11 of JVA
dated 7.1.1994 reads as under:-
Any and all
claims, disputes, controversies, disagreements or differences between the
parties arising out of or in relation to or in connection with this agreement,
or with a breach thereof, which cannot be satisfactorily settled by
correspondence or mutual conference between the parties hereto, shall be
determined by arbitration in accordance with the then prevailing rules of
Conciliation and Arbitration of the International Chamber of Commerce by one or
more arbitrators appointed in accordance with the such Rules upon written
request of any party hereto. The site
of such arbitration shall be London, United Kingdom. The decision of such Arbitrator or Arbitrators shall be final and
binding upon the parties hereto and judgement thereon may be entered in any
court having jurisdiction thereon; application may be made to such court for
judicial acceptance of the award and/or for order of enforcement, as the case
may be. For the purpose of any such
arbitration, all Jindal companies and Jindal shall be considered as a single
party and also Caparo Group of Companies shall be considered as a single party
and they shall receive and serve all notices and pleadings and make all
designations in respect of such arbitration acting for themselves and any or
all of their companies.”
3. Pursuant to the
aforesaid agreement, M/s Caparo Maruti Ltd. was incorporated in 4th
April, 1994 for the manufacture and supply of components and assemblies for
Maruti Udyog Ltd. in particular. With
regard to the appointment of Chairman of the Board of M/s Caparo Maruti Ltd.,
Artilce 150 of the Article of Association provides that the directors shall
from time to time elect from amongst them such a director as recommended and
nominated by Caparo Group Ltd. to be the Chairman for the Board and determine
the period for which he is to hold office.
Further, in accordance with the aforesaid agreement, the shareholding of
the company was to be in the following ratio;-
a. Caparo Group 60%
b. Maruti Udyog Ltd.
20%
c. Jindal Group 20%
4. The respondent
company namely, M/s Caparo Maruti Ltd
has ratified and has adopted the JVA by way of resolution of Board of Directors
dated 22.7.2003. On 27th Feb
2003, the Caparo Maruti Ltd. in accordance with Article 6.04 of the JVA and
also Article 150 of the Articles of Assocaition nominated Mr. Angadh Pal as the
Chairman of Board of Directors of M/s. Caparo Maruti Ltd.
5. The respondents
have submitted that the various allegations made in the petition and the substance of the disputes alleged in the
petition are in respect of matters covered in the JVA. The foundation of the
main petition is nothing but certain issues arising out of the terms of the JVA
. In this connection, the respondents
have referred to para 6(i) to (x) and (xiii) of the petition, wherein it is
alleged that the applicant company M/s Caparo Maruti Ltd was incorporated by
Mr. M.D. Jindal on the request of Lord Swaraj Paul and the Machino Group who is
wholly and solely responsible for the formation of this company and that all
the initial expenses for over a period of one year was borne by the Machino
Group and that the Caparo Groups’ contribution came only a year after its
incorporation when the company had already passed its take off stage.
6. The applicants have also drawn attention to
para(xi) of the petition wherein it is
mentioned that for the purpose of
maintaining relationship and because of the close family relationship between
the two groups only the director suggested by Caparo Group were appointed as
Directors and Mr. M. D. Jindal who is also the Chairman of Machino Plastics Ltd
was appointed as the Chairman of the company at its duly convened Board of
Directors Meeting and it was an understanding between the groups that Mr. M.D.
Jindal would remain Chairman throughout the life. Therefore, he has been acting as Chairman of the company and has
been managing its affairs even before Caparo came into picture and has been
getting full cooperation from the Management and the employees of the company
till recent past. Because of his good
management and business acumen just in a short span of seven years the turn
over of the company rose from Rs.19.57 crores in the year 1997-98 to Rs. 56.62 crores.
in the year 2002-2003 and reserves of the company stood at 7,08,07,749.00 as on
31.12.2002 as per information given to
the Board of Directors in the meeting held on 7.2.2003.
7. In para 12 of the main petition the
petitioners have pointed out that machino group is not only the founder/promoters
of Caparo Maruti Ltd. but have also
funded the company from time to time.
It is also stated that Mr.M.D. Jindal was appointed for lifetime
Chairman with unwritten understanding and cannot be removed. These allegations have been denied by the
respondents in their present application in question. The respondents have
further submitted that the interim orders sought under para 20 of the petition
are in relation to the JVA such as removal of Mr. Jindal from Chairmanship and
wholetime directorship or restraining some directors from participating and
/voting in the Board Meeting of the company as also directing respondents not
to act contrary to the interest of the Mr. M.D. Jindal. Accoridng to applicants/Respondents these
are all matters covered under the JVA.
8. The
respondents/applicants have submitted
before this Board that company law board is a judicial authority within the
meaning of Sec 8(1) of the Arbitration and Conciliation Act, 1996. The present
action brought by the petitioner in their main petition is the subject matter
of the Arbitration Agreement (JVA) and therefore liable to be referred to
Arbitration in terms of Section 8(1) Arbitration Act. The respondents in the premises have prayed that this Hon’ble
Court may be pleased to refer the parties for arbitration in respect of all or
any of the disputes arising out of, in connection with or in relation to the
agreement.
9. In brief, the
respondents/applicants in this application have submitted that there is an
Arbitration agreement, the subject matter of the main petiton is the same as
the subject matter of the arbitration
agreement . The respondents have
relied on Article 11 of the Joint Venture Agreement dated 7.1.1994. They have
mentioned that this clause has to be read alongwith the definition of parties
contained in the beginning of the said agreement, wherein it is mentioned that
M.D. Jindal, Chairman of M/s Machino Plastics Ltd. and M/s Machino Techno Sales
Ltd. and their associate companies (hereinafter called JINDAL Capital which expression
shall include its successors and assigns).
The respondents have further mentioned that Machino Plastics Ltd. and
Machino Finance Ltd. (previously Machino Techno Sales Ltd. are named as parties
in the arbitration agreement as all Jindal Companies and Jindal shall be
considered as a single party as mentioned in the agreement. The respondents have further said that an
arbitration agreement is required to be in writing but need not be signed by
the parties. An arbitration agreement
has to be in writing both under the Arbitration Act 1940 and 1996. The
respondents have further stated that no signature is required, provided the
intention of the party is clear (JK Jain and Ors. Vs. DDA and Ors. (AIR 1996 SC
318), Banarasi Das Vs. Cane Commissioner, UP (AIR 1963 SC 1417). The applicants have further submitted that
wherever the provisions of Arbitration Act 1996 are in pari materia with the Arbitration Act 1940,
courts have always accepted that the long standing legal position will continue
to apply. According to respondents the
contentions of Section 7 (2) of Arbitration Act 1996 are peri meteria with the
contentions of section 2(1) (a) of the 1940 Act as far as the requirements of
writing is concerned. No contrary
intention can be implied from Section 7 (3) of the new Act of 1996 which
enumerates certain circumstances under which an agreement would be said to be in writing.
10. The respondents
have argued that the arbitration
agreement in question was signed by Mr. M.D. Jindal and he had express
authority to enter into an arbitration agreement on behalf of the
petitioners. According to them this can
be inferred from the following aspects:-
a. Mr. M.D. Jindal
admittedly is the promoter of the petitioner companies in main the main petition.
b. The said companies are owned and controlled
by Mr. Jindal and members of his family.
c. Mr. M.D. Jindal
is the Chairman of the petitioner companies.
d. The application
for allotment of shares of one of the companies has been signed by Mr. M.D.
Jindal.
e. The Meeting of the Board of Directors of M/s
Caparo Maruti Ltd. of 10th August, 1994 had express reference
thereof in the share application form.
f. Disclosures/statements
made in the prospectus and other company records.
g. Article 14 of the
Article of Association of M/s Caparo Maruti Ltd which expressed the mandates of
JVA that the paid up share capital shall always remain in the following
proportion:-
(i) Caparo Group 60%
(ii)M.D. Jindal 20%
(iii)Maruti Udyog
Ltd. 20%
11. The respondents
have further stated that the allotment of shares has been made from the quota of Mr. M.D.
Jindal and at the instance Mr. Jindal who represents the interest of the said
shareholders in the Board of Caparo Maruti Ltd. The scope of Mr. Jindal’s
authority vis. a vis the petitioner companies
is a matter within the special knowledge of petitioner and therefore,
the burden of establishing that he had no authority on behalf of petitioners
lies on them. (Section 106 Evidence Act).
12. The respondents
also relied on provisions of Section 46 of the Companies Act.. 1956 that
implied authority is sufficient for the purpose of binding up a company in a contractual matter. Accordingly, Mr. Jindal had implied and ostensible
authority to act on behalf of the petitioner companies.
13. The respondent
have further argued that the principal respondents in the main company petition
are Caparo Maruti Ltd. and Caparo Group Ltd..
The Caparo Group Ltd. is the signatory to the arbitration agreement. The Caparo Maruti Ltd. was not incorporated
on the date of signing of Joint Venture Agreement but is bound by the same, since it is a pre-incorporation contract
executed by the promoters of the said company. The respondents state that such
contracts are binding on the petitioner under Section 15(1)(h) and Section
19(E) of the Specific Relief Act. They have relied upon on the companyn V.P.
Rao (AIR 1984 AP 176 and Commissioner of IT( AIR 1953 Patna 298). Further the
directors in their meeting held on 4.6.1994 and rectified the pre-incorporation
contract dated 7.1.1994. A copy of the
Board resolution was also filed.
14. The respondents
also submitted that the parties to the main petition are also to the parties to
arbitration agreement and the subject matter of the company petition is covered
by the arbitration agreement. The
language of the arbitration agreement is very wide since its uses phrase like
“arising out of “ --------------.
According to the respondents, the allegations in the petition are two
fold (a) to protect the Chairmanship of Mr. M.D. Jindal and (b) allegation that
the respondents have acted against the interest of the company in giving loans
to certain concerns. These two aspects
are specially covered in Article 7 and 11 of the Joint Venture Agreement . The respondents have therefore submitted that all conditions of Section 8
of Arbitration and Conciliation Act, 1996 are satisfied and this Board has no
discretion but to refer the matter for
arbitration as per Joint Venture Agreement.
The learned counsel for respondent has relied on the following case
laws:-
i.
Naveen Kedia and Ors Vs. Chennai Power Generation Ltd and
Ors.(1998) 4 Comp.LJ 128(CLB)
ii.
Escorts Finance Ltd. Vs. G.R. Solvents and Allied Industries Ltd
and Ors(1999)2Comp LJ 534(CLB)
iii.
Khandwala Securities Ltd and Ors Vs. Kowa Spinning Ltd and
Ors.(2000)1 Comp.LJ 78 (CLB)
iv.
20th Century Finance Corpn. Ltd. Vs. RFB Latex Ltd and
Ors.(2000)1Comp.LJ 104 (CLB)
v.
Bhadresh Kantilal Shah Vs. Magotteaux Interntional and Ors(2000)2
Comp LJ 323 (CLB)
vi.
Hely Hutchinson Vs. Brayhead Ltd and Anr.(1967)3 All E.R.98
vii.
Mohta Alloy and Steel Works V. Mohta Finance and Leasing
Co.Ltd.(1997)3 Comp LJ 183(Del)
viii.
Freeman and Lockyer V. Buckhurst Park Properties(Malgal) and
Anr.(1961)1 All E.R 630.
ix.
Pinki Das Gupta Vs. Maadhyam Advertising P.Ltd and Ors.(2002)4
Comp.LJ 318 (CLB)
x.
Municipal Corpn. Of Delhi Vs. Gurnam Kaur (1989) 1 SCC 101.
xi.
Commissioner of Income Tax.,Bihar and Orissa V. Bhurangiya Coal Co.
AIR 1953 Patna 238.
xii.
J.K. Jain and Ors. V. Delhi Development Autority.(AIR 1996 SC 318)
xiii.
Vali. Pattabhirama Rao and another Vs. Sri Ramanuja and Ors &
Rice Factory P.Ltd.and Ors. (AIR 1984 AP 176)
xiv.
Doypack Systems P.Ltd. V. Union of India and Ors .(1988 2 SCC 299)
xv.
Renusagar Power Co. Ltd. V. General Electric Co.and Another (1984)4
SCC 679
xvi.
Banarsi Das V. Cane Commr.UP and another (AIR 1963 SC 1417.
xvii.
Delhi Development Authority V. Skipper Construction Co.P.Ltd and
Anr.(1996) 4 Comp.LJ 233(SC)
15. The learned
counsel for petitioners in the main petition submitted that the Arbitration
Agreement was not applicable to them.
The arbitration agreement should be between the parties in writing and
if such document is in writing, it should be signed by the parties under the
provisions of Section 7, 8, 44 and 45 of the Arbitration and Conciliation Act, 1996 and the first
schedule thereto.
16. The learned
counsel for petitioners submitted that the provisions of Section 7 are two fold
namely, the arbitration agreement shall be in writing and must be signed by the
parties an arbitration agreement is in writing, if it is contained in a document signed by the parties or in
exchange of letters, telegrams etc.
Section 8 of the Arbitration and Conciliation Act indicates the power of
the judicial authority to refer the parties to arbitration before which an
action is brought in a manner which is the subject of an arbitration agreement,
if a party so applies not later than when submitting his first statement on the
substance of the dispute.
17. The perusal of
sections 44 and 45 and first schedule of the Arbitration and Conciliation Act
1996 indicates that to invoke arbitration clause in an agreement, there must be
arbitration agreement in writing signed by the parties in terms of Section
7(4)(a) and Section 45 read with the first schedule, where the word “signed by
the parties” are missing as argued by the learned counsel for respondent which
are contrary to their pleadings as the act of 1996 has been invoked by the
applicants. The learned counsel for
petitioner submitted that position in Arbitration Act 1986 has changed the Act
of 1940.
18. The learned
counsel further submitted that the alleged arbitration agreement is contained
in a document referred to as Joint Venture Agreement (JVA) dated 7.1.1994 and
the said JVA is not signed by any person for and on behalf of the petitioner
namely, Machino Plastics Ltd. and Machino Finance Pvt. Ltd. Hence arbitration agreement under question
is not signed by the petitioner companies and the said joint venture agreement
is also not signed by Mr. Jindal for and on behalf of any person. Further no person has signed on behalf of
M/s. Caparo Maruti Ltd and Caparo India Ltd or other respondents mentioned in
the petition. The learned counsel was
of the view that the authorities cited by the applicants under arbitration act,
1940 namely, JK Jain and Ors Vs. DDA
and Ors (AIR 1996 SC 318) and Renu
Sagar Power Co. Ltd Vs. Journal Electric Co. Ltd (AIR 1984-4 SC Cases 6,7,9)
are in relation to Arbitration Act, 1940 and are not applicable in relation to
Arbitration and Conciliation Act, 1996.
The application is liable to be dismissed on this ground alone.
19. The learned
counsel for petitioners further submitted that Section 8 or Section 45 of
Arbitration Act come into play when the parties in the legal proceedings before
the judicial authority and parties in the arbitration proceedings or
arbitration agreement are the same or substantially the same. The learned counsel submitted that in the
present proceedings under Section 397/398 of the Companies Act, 1956 the
signatories to the purported JVA dated 7.1.1994 are neither the petitioners nor
the respondents. He further submitted
that none of the parties in the petition are signatories to the JVA. The three parties which are signatories to
JVA namely, Maruti Udyog Ltd. Caparo Group Ltd. and Mr. M.D. Jindal in his
individual capacity are the only signatories and it is clear that the parties
before Company Law Board and the parties to the said JVA are not the same. The
learned counsel therefore, submitted that an application under Section 8 and 45
of the said Arbitration Act shall fail if the pre requisites to invoke the
arbitration clause is not satisfied namely, the parties in the petition are not
the same as the parties to the Joint Venture Agreement. He relied on the following authorities and
submitted that in all the authorities cited below by the applicant, the parties to the petition are common to the
arbitration agreement whereas in the present case the parties are non
peri-materia to the JVA :-
a. Naveen Kedia
& Ors Vs Chennai Power Generation Ltd. and Ors. (1999(Vol-95)CC 640)
b. 20th Century
Finance Corporation Ltd. Vs RFB Latex Ltd and Ors(1999)(Vol-97)CC 636
c. Khandwala
Securities Ltd. Vs Kowa Spinning Ltd. and Ors (1999(Vol-97)CC 632
d. Pinaki Das Gupta
Vs. Madhyam Advertising Pvt. Ltd and Ors. (2002(4 Com.LJ 318 CLB.
20. The learned
counsel for petitioner relied on the judgement of Company Law Board n the case
of Bhadresh Kanti Lal Shah Vs. Magotteaux International and Ors 2000(2) CLJ
323(CLB) which is in their favour as it supports the contention that if the
parties are not the signatories to the arbitration agreement, application under
Seciton 8 or 45 of the Arbitration Act cannot be allowed and the matter cannot
be referred to arbitration. The ratio of the judgement is if a company is not a
party to the arbitration agreement, the said agreement is not binding on the
company. The learned counsel has referred to the judgement Gowri Spinning
Mills Ltd. Vs. Adimoolam and Anr. 2002
Supp. 375 Arbit LR(Madras) which holds that if all the shareholders have not
signed the agreement, some of these shareholders cannot arbitrarily bind the
company.
21. The learned
counsel has further submitted that the joint venture agreement is not signed by
any person for and on behalf of Caparo Maruti Ltd., hence, the said JVA is not a valid agreement being
pre-incorporation agreement which is void and not enforceable in the eyes of
law . He relied on the following judgments
i.
Seth sobhag Mal Lodha & Ors. Vs. Edvered Mills Co.Ltd (1972) 42
Com. Cases.
ii.
New Borne Vs. Sensolid Great Britain Ltd.(1954) Vol 34 Com.
Cas.159.
22. The learned
counsel also submitted that the Specific Relief Act would not come to the
rescue of respondents as the objective of the Specific Relief Act is to provide
a specific relief as may be obtained in a civil court and not in other courts
such as revenue, criminal and other tribunals like Company Law Board.
23. With reference to
Mr. M.D. Jindal, as Chairman of Machino Plastics and Machino Techno Sales Ltd.
the learned counsel for petitioner have submitted that Mr. Jindal is not even a
shareholder on the date of the petition in these two companies. Further
reference to Machino Plastics and Machino Techno Sales Ltd. and their associate
companies and Jindal Companies are vague indefinite and without any definition,
which cannot bind another separate juristic persons in absence of specific
authority. Mr. M.D, Jindal is only
non executive Chairman of the Board and does not carry with him any executive
authority and he is not empowered by the Board of Directors to bind the
company. The learned counsel supported
his contentions with the following judgments:-
i.
Hindustan Petroleum Vs. Sardar Chand (1991 71 Com.Cas 257.
ii.
Nibro Ltd. Vs. National Insurances (1991 70 Com.Cas. 388
iii.
K.N. Shankaranarayanan Vs. Shree Consultants (1994 80 Com.Cas.558.
24. The learned
counsel for petitioner also submitted that no person including Mr. M.D. Jindal,
has signed the arbitration agreement for and on behalf of the petitioner
companies. There is no express or
implied authority and hence there is no question of discharge of burden of proof
of authority in terms of section 106 of Indian Evidence Act 1872, which
question will arise only if some person exercises such authority by affixing
signatures for and on behalf of the petitioner company.
25. The learned
counsel for petitioner also submitted that the subject matter of the petition
and the proposed arbitration agreement are different, which is evident from the
claim by the respondent before Secretariat of International Chamber of
Commerce. It is evident from the claim
that none of the parties to the claim, is a party to the arbitration agreement
as alleged.
26. The learned
counsel for petitioners has also brought to my notice that a Civil Court of
Competent Jurisdiction has already held that a person who is not signatory to
JVA dated 7.1.1994 in his personal capacity cannot be bound by Arbitration
agreement, which is on record in the case of Rajiv Jindal Vs. Caparo Maruti Ltd. and Ors. as per order passed by
Civil Judge Alipur, West Bengal on 24.7.2003.
27. The learned
counsel mentioned that the allotment of shares to the petitioners have
been made afresh and not
by transfer. It
is not factually
correct to say that the shares
allotted to the
petitioners are from
20% quota or
shares earmarked to Mr. M.D.Jindal and Associates. The learned counsel
further submitted that even if the allotment is made within the limit of 20%
paid up capital earmarked for Mr. Jindal, the petitioners are not automatically
bound by the terms of JVA as the petitioners have not entered into any
agreement afresh to bind the new shareholders nor the petitioners agreed or
signed any arbitration agreement as alleged and Mr. M.D. Jindal on his own
cannot bind independent legal persons such as petitioner companies. According to the learned counsel for
petitioners the reference to share application and Board Resolution only
demonstrates the number of shares to be allotted and does not constitute fresh
legal agreement between the petitioners and the respondents. Therefore, the question of lifting of
corporate veil is not warranted as argued by the petitioners viz.(DDA Vs.
Skipper Construction Company (P) Ltd & Anr.(1996) 4 CLJ 233 SC). The learned counsel for the petitioner further submitted that the arguments of
respondents that the Jindal and Associates have wide meaning and can be
interpreted widely is not applicable in this case as it would amount to
traversing beyond the elements of section 7,8 and 45 and first schedule of the
arbitration and Conciliation Act, 1996 which specifically requires that any
document in writing should be “signed by the parties”. The learned counsel
submitted that the Supreme Court judgement in Municipal Corporation Delhi Vs.
Gurnam Kaur 1989 1 SCC 101 and M/s Doy Pack Systems (P) Ltd. Vs.Union of India
and Ors. 1988 2 SCC 299 are not applicable in this case.
28. .The learned
counsel further submitted that the issue of Chairmanship of Mr. M.D. Jindal is not the only issue
in this petition. There are other
serious issues of financial mismanagement and misfeasance of funds by the
majority shareholders. The unsecured
loan to the tune of Rs.6.4 Crores have been given to the group companies of the
respondent shareholders. The companies
to which these unsecured loans are given, are on and controlled by the respondents
and the loan amounts which are equivalent to the share capital brought in by
the respondent in the company prove the siphoning off funds. According to
learned counsel for petitioner, these allegations cannot be gone into and
decided by the Arbitrator.
29. The learned
counsel for petitioner submitted that the present application under Section 8
or 45 of the Arbitration and Conciliation Act, 1996 is liable to be dismissed
and their petition be heard on merits.
30. I have considered
the pleadings and written submissions including additional written submissions
of both parties as well as oral submissions of the learned counsels of both
sides. The main point to be considered
is whether the Joint Venture Agreement dated 7.1.94 signed among three parties namely, M/s Maruti Udyog Ltd, M/s
Caparo Gp. Ltd, and Mr. M.D. Jindal is
applicable to the petitioners in the main petition viz. Machino Plastics Ltd.
and Machino Finance Ltd. Before I deal
with this issue it will be pertinent to look to the provisions of Sec 7,8 and
45 of Arbitration and Conciliation Act, 1996 which provides as under:
31. Section 7 of the
Arbitration Act deals with the meaning of Arbitration Agreement which arises
between the parties in respect of a defined legal relationship, whether
contractual or not. The Arbitration
Agreement shall be in writing the agreement is in writing if it is contained in
a document signed by the parties, an exchange of telex ,letters, telegrams or
other means of telecommunication or an exchange of statement of claim and
defense or a reference in a contract to a document containing an arbitration
clause constitute an arbitration agreement if the contract is in writing and
the reference is such as to make that arbitration clause part of the contract.
32. Section 8 of the
Arbitration Act deals with powers of judicial authority to refer parties to
arbitration where there is an arbitration agreement. Section 45 of the Arbitration Act refers to the agreement under New York Convention Awards defilned
under Section 44 of the Arbitration Act and states that at the request of one
of the party of any person claiming through or under him, refer the parties to
arbitration, unless the judicial authority finds that the said agreement is
null and void, in-operative or incapable of being confirmed. The learned counsel for petitioners have
relied their arguments mainly on the provisions of Section 7,8, 44 and 45 that the parties in question
namely, Machino Plastics Ltd. and Machino Techno Sales Ltd. which are parties
to the main petition have not signed Joint Venture Agreement of 7.1.1994.
33. It is true that
both the parties in the main petition namely, Machno Plastics and Machno Techno
Sales Ltd. have not signed Joint Venture Agreement in question. Now the issue before me is to decide whether Mr. M.D. Jindal who has signed
Joint Venture Agreement can be said to have signed this agreement on behalf of
these two companies and has committed them to the Joint Venture Agreement. Let me examine the contention of the
arbitration agreement, the Joint Venture Agreement was made in 1994 for
establishing the company with limited liability in the name of Caparo Maruti
Ltd. as a public limited company under the C.A, 1956. The Maruti Udyog Ltd. and Co-promoters made this agreement to
establish the Joint Venture Co. for the purpose of manufacturing the components
and assemblies in India for Maruti Udyog Ltd. in particular and industry in
general. It is mentioned in Article 3
of the Joint Venture Agreement that the issued capital shall be subscribd by
the parties in the following proportion;-
Caparo 60%
Jindal 20%
MUL 20%
34. The above ratio
shall be irrespective of the fact that whether the shares are partly paid or
fully paid up. That in the event of any
restriction/change in the ratio of allotment of shares to the public, the ratio
of shares between Maruti Udyog Ltd and Co-promoters (namely Jindal and MUL)
would always remain the same as above.
The agreement has been signed by all the three parties. The agreement
may only be amended in writing by the parties and the agreement shall continue
in effect for an indefinite term.
35. Looking to the
Article 11 of the JVA which deals with Arbitration Clause, it is clearly
mentioned that any and all claims, disputes, controversies, disagreements or
differences – between the parties arising out of or in relation to or in
connection with disagreement, or with a breach thereof, which cannot be
satisfactorily settled by correspondence on mutual conference between the
parties hereto, shall be determined by Arbitration in accordance with the then
prevailing rules of Conciliation and Arbitration of the International Chamber
of Commerce. The site of such
arbitration shall be in London, United Kingdom. It is further mentioned in this Article that for the purpose of any
such arbitration, a Jindal Companies and Jindal shall be considered as a single
party and also Caparo Gp. of Companies will be considered as a single party and
they shall receive and serve all notices and pleadings and make all
designations in respect of such arbitration acting for themselves and any or
all of their companies.
36. In the title
clause of the JVA, it is defined Mr. M.D. Jindal and person having his
residence at A-10, New Friends Colony, New Delhi –65 and Chairman of M/s Machno
Plastics Ltd. and M/s Machino Techno Ltd. and their Associate Companies
(hereinafter called Jindal) which expression shall include its successors and
assigns. However, in the end of the
agreement Mr. M.D. Jindal has not signed on behalf of any aforesaid
company.
37. Now the question
arises whether or not Mr. M.D. Jindal had express or implied authority to enter
into any arbitration agreement on behalf of the petitioner in the company
petition. In this context Mr. M.D.
Jindal admittedly is the promoter of the petitioner companies and has been
working as Chairman of the said companies.
These companies had been floated by Mr. Jindal and are owned and
controlled by him or members of his family.
The resolution passed in the Board Meeting of 10.8.1994 of M/s Capara
Maruti Ltd; specifically makes a mention of the Joint Venture Agreement dated
7.1.1994 while agreeing to allot equity shares to the petitioner
companies. Similarly, the share
application form filed by both petitioner companies to get the shares had clear
mention about Board resolution of Caparo Maruti Ltd. of August, 10, 1994.
38. Similarly,
Article 14 of Articles of Association of Caparo Maruti Ltd. indicates that the
paid up share capital shall always remain in the same proportion as has been
mentioned in the Joint Venture Agreement.
The allotment of shares had been made out of the 20% quota of Mr. Jindal
and he had signed one of the application of the petitioner company. Mr. Jindal admittedly represents the
interest of these shareholders in the Board of Caparo Maruti Ltd. and he was
till recently Chairman of Caparo Maruti Ltd.
39. From the facts
mentioned above including the written submission as well as oral submissions
made by the learned counsels for both the parties, I tend to agree with the
learned counsel for the petitioners that although Mr. Jindal is shown in title
clause of Joint Venture Agreement as Chairman of M/s Machno Plastic Ltd and
Machno Techno sales Ltd. and their associates but he has not signed the
agreement on their behalf.
40. The learned
counsel for Respondent has been relying on the circumstantial evidence such as
mention of JVA in the applications of allotment of shares and Mr Jindal having stake in all the three
companies at one time or the other etc, but there is no documentary evidence
brought on records to make a conclusive proof that Mr. Jindal had explicit or
implied authority to sign JVA on behalf of both the petitioners companies. Nothing is on was record to conclude that
petitioners company have been made party to Joint Venture Agreement either
while rectifying the same or passing any Board resolution etc.
41. The provision of
section 8 of Arbitration and Conciliation Act, 1996 are epicure that the
parties have to sign the agreement. In
the instant case, there is nothing to show that both parties to the present
petition had sign the JVA.
42. The substantial
relief sought by the petitioners in the main petition are:- Declare Mr. Jindal
as permanent Chairman of Respondent company and financial irregularities. At best the first issue that is of the
appointment of Mr. Jindal can form subject matter of arbitration and the second
issue of financial irregularities and removal of Respondent No. 2 from the
Directorship would not fall under the ambit of arbitration agreement. In the recent judgement the Hon’ble Supreme
Court has laid down, which was not brought to my notice by the either party, in
para 13 to 17 of Sukanya Holding (P) Ltd. Vs. Jayesh H. Pandya and another
(2003) Comp. L) 68 (SC) which reads as under (13 to 17): -
Para
13:-Secondly, there is no provision in the Act 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.
Para 14 :-
Thirdly, there is no provision- as to what is required to be done in a case
where some parties to the suit are not parties to the arbitration
agreement. As against this, under
section 24 of the Arbitration Act, 1940, some of the parties to a suit could
apply that the matters in difference between them be referred to arbitration
and the court may refer the same to arbitration provided that the same can be
separated from the rest of the subject matter of the suit. Section also provided that the suit would
continue so far as it related to parties who have not joined in such
application.
Para 15 :- The
relevant language used in section 8 is – ‘in matter which is the subject matter
of an arbitration agreement’. Court is required to refer the parties to
arbitration. Therefore, the suit would be in respect of ‘a matter’ which the
parties have agreed to refer and which comes within the ambit of a 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 and there is no question of application of section 8. The words ‘a matter’ indicates entire
subject matter of the suit should be subject to arbitration agreement.
Para 16:- The
next question which requires consideration is- even if there is no provision
for partly referring the disputes to arbitration, whether such a course is possible under section 8 of the
Act ? In our view, it would be difficult to give an interpretation to section 8
under which bifurcation of the cause of action that is to say that subject
matter of suit or in some cases bifurcation of the suit between parties who are
parties to the arbitration agreement and other is possible. This would be lying down a totally new
procedure not contemplated under the Act.
If bifurcation of the subject matter of a suit was contemplated the
legislature would have used appropriate language to permit such a course. Sine there is no such indication in the
language, it follows that bifurcation of the subject matter of an action
brought before a judicial authority is not allowed.
Para 17 :-
Secondly, such bifurcation of suit in two parts, one to be decided by the
arbitration Tribunal and other to be decided by the civil court would
inevitably delay the proceedings. The
whole purpose of speedy disposal of dispute and decreasing the cost of litigation
would be frustrated by such procedure.
It would also increase the cost of litigation and harassments to the
parties and on occasions there is possibility of conflicting judgments and
orders by two different forums
43. The Hon’ble
Supreme Court has held that there is no provision in the Arbitration Act when
the subject mater of the suit includes the 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. It is further held that the subject matter of the suit
should be subject of arbitration agreement.
44. From the perusal
of the main reliefs sought in the company petition as well as JVA it is
revealed that the parties to the petition and JVA are not similar and also
subject matter of the petition is not totally covered under the clauses of JVA.
Accordingly the application of the respondent for referring the case to
arbitration cannot be allowed as it would amount to splitting of subject matter
of the petition more so all the parties to the petition have not signed the
JVA. As such, their cause of action cannot be referred to arbitration for
redressal of their grievances.
45. The application
is accordingly dismissed. The Respondents are directed to file their reply to
the main petition within four weeks and rejoinder, if any, may be filed by the
petitioners within two weeks. List case for hearing of the main petition on 9th
Feb 2004 at 10.30 a.m. .
46. There is no order
as to the cost.
(K.C. GANJWAL)
Member
New Delhi,
Dated, the October, 2003.
The Respondents were to file papers
regarding reference to BIFR by 4.8.4 with the copy to the Petitioner. The papers have not been filed and the case cannot
be prolonged in this pretext
The Respondents are directed to file
reply to the main petition within 2 weeks.
Rejoinder, if any, to be filed within a week thereafter. Interim orders passed on 19.7.24 and 23.7.24 shall continue till the final disposal of
this case. List case for hearing
______.