BEFORE
THE COMPANY LAW BOARD, PRINCIPAL BENCH, NEW DELHI
CP
No.32 of 2004 CA
No.151 of 2004,
155/2004 and 157/2004.
Present:
Shri K.C. Ganjwal, Member
In the matter of the Companies Act, 1956, Sections 397/398 read
with Sections 235,237(b) and 402, 403.
AND
In the matter of:
Datapro Electronics Pvt. Ltd.
AND
SRG Infotech Limited. ..Petitioner
Versus
AND
In the matter of the Companies Act, 1956, Sections 397/398 read
with Sections 235,237(b) and 402, 403.
And ` CP
No.33/2004
CA
No.156 of 2004
In the matter of
M/s SRG Infotec Ltd. ..Petitioner
Vs.
Present on behalf of the company
Ms. Ranjana Roy Gawai, Advocate ..
for petitioner
Shri Sameer Gambhir, Practising
Company Secretary ..for
petitioner
Shri Adesh Tandon, Practising C.S. ..for
petitioner
Shri Parag Tripathi, Sr. Advocate ..for
respondent
Ms. Kumkum Sen, Advocate ..for
respondent
Shri Rajeev Kumar, Advocate ..for
respondent
Ms. Geeta Rani, Advocate ..for
respondent
Shri Archa Saran, Advocate ..for
respondent
Shri Rajev Arora, Advocate, ..for
respondent No.2
Shri Nesar Ahmad, Practising C.S. ..for
respondent No.7
O R D E R
1. The above
mentioned petitioner has filed two company petitions No.32/2004 and 33/2004
against Datapro Electronics Pvt. Ltd. and Ors. and M/s Datapro Infoworld Ltd.
and Ors. under Section 397/398,399 read with Sections 235, 237(b) and 402 and
403 of the Companies Act, 1956. The
main reliefs sought in the petitions are as under:-
a) Declare
Respondent NO.s 2 to 6 unfit to be appointed as Chairman, Managing Director,
Director as they have caused breach of fiduciary duty imposed on them.
b) Set aside the
issuance of bonus share allotted on 24.6.1999
c) To grant immunity
to the petitioner from any present or future liability arising out of any
violation of Regulation/Statutory default/non compliance of Rules committed by
the respondents.
d) Direct an
independent enquiry/investigation into the affairs of the respondent company to
investigate the unuse of funds.
The learned counsel for respondent submitted:
2. The respondent
NO.2 in the present proceedings as well as Chairman and Managing Director of
Datapro Electronics P. Ltd. and M/s Datapro Infoworld Ltd have filed two
applications NO.155/04 and 156/2004 under Section 8 of the Arbitration and Conciliation
Act 1996. The respondent has stated in
his application that the respondent company is admittedly and presently a joint
venture in the style of a partnership between SRG Infotech, a company promoted
and controlled by Mr. Ashok Aggarwal, the respondent and his family
members. The subject matter of the
proceedings before this Board arises out of and is subject to an arbitration agreement in the fact and circumstances
stated herein, which material fact has been deliberately suppressed and
withheld by the petitioner from this Board.
3. The respondent in
these applications had been managing and operating the business of Datapro
Electronics including respondent company.
Due to certain financial difficulties , the respondent was compelled to
explore the possibility of locating the strategy and financial partner in the
business of the respondent company. The
respondent No.2 approached Mr. Ashok Agarwal, the promoter and director of the
petitioner company and on the basis of understanding arrived at between the
parties, executed a Memorandum of Understanding on 10.5.1999 with one Mr.
Rajesh Kukreja, a nominee of Mr. Ashok Aggarwal. On 14.6.2000 another
Memorandum of Understanding was entered between the respondent Mr. Ashok
Agarwal and Mr. Rajesh Kukreja . The
second MOU interalia provides for strategilc alliance of the ownership,
management and control of the Datapro of the companies including the respondent
company. The second MOU further
provided that the respondent would have the responsibility for day to day
running of the respondent company while Mr. Ashok Aggarwal was to look after
the matter relating to restructuring of the business and capital market. It was further submitted by the learned
counsel for the respondent that the entire foundation of the petition and the
allegations therein, are based and arise out of the second MOU. In view of the fact that the second MOU
contains the Arbitration Clause for resolution of dispute, the present
controversies and disputes have to be settled by arbitration in accordance with
the arbitration and conciliation Act, 1996.
The relevant Clause VI of the MOU reads as under:-
“All disputes, controversies, or differences, which may
arise between the parties, out of or in relation to or in connection with this
Agreement, or for the breach thereof, shall be finally settled by arbitration,
in accordance with the Arbitration and Conciliation Act, 1996. The venue of
arbitration shall be Mumbai.”
4. It was submitted
that the subject matter of the petition and of arbitration clause mainly clause
VI of the MOU dated 14.6.2000 mentioned above is the same. It was also submitted that an account of the
statutory mandate conferred under Section 5 of the arbitration and conciliation
act, 1996, restraining and confining
any judicial intervention, the present cases extremely strong for referring the
dispute raised in the present petition to arbitration. The learned counsel relied on various
decisions in several matter being Naveen
Kedia v Power Genreal Ltd. (1999) 95 Comp. Cases 6f40, Escorts Finance V G.R.
solvents (1999) 2 Comp LJ 534 (CLD – New Delhi) and Allianz Securities Vs Regal
Industries (2000) 37 CLA 250 wherein interalia it has been held that the
CLB has no discretion under the Arbitration and Conciliation Act not to refer
the parties to arbitration and such reference is mandatory. It was pointed out that in the case of
Allianz Securities Vs Regal Industries, this Board has held that when
proceedings have been initiated why statutory authorities, and the company’s
financial statement are under scrutiny, and order of investigation into the
affairs of the company is an avoidable duplication.
5. The learned
counsel also referred to the judgement in the case of Deepakji Mehta and Ors
Vs. Shree Anupar Chemicals (I) Pvt.
Ltd. and Ors 33 CLA 393 CLB 1999 and pointed out that while, in the normal
course the company should be a party or the article should reflex such an
agreement to bind the company, yet if the company has taken benefit or has
acted in terms of any such private agreement, then the company is bound by the
terms of the agreement, at least in relation to the terms that the company has
acted upon or derived certain benefit.
The learned counsel also referred Supreme Court judgement of Kalpana
Kothari Vs. Sudha Yadav and Ors (2002 1 Supreme Court Cases 203 and mentioned
that Section 8 of the 1996 Act mandates that the judicial authority before
which an action has been brought in respect of a matter, which is subject
matter of an arbitration agreement, shall refer the parties to arbitration if a
party to such an agreement applies not later than when submitting his first
statement. The judgement of Hon’ble
Surpeme Court in the case of Anang Group Intnl. Trade Corporation Vs. Pipevav
Railway Corporation Ltd .to press its point that it is not necessary to have a
formal agreement executed between the parties.
It can be even by way of exchange of letters and other such
communications. It was also mentioned
that the matter is such that it may require probe and inquiry into the objections
raised by the respondent and it is only feasible and appropriate that the
arbitration himself may embark upon any such enquiry in case any objection or
issue is raised by the respondent before the arbitrator regarding existence of
an agreement between the parties. The
Learned Counsel is of the view that
whether an agreement between the parties exist or not has to be decided by the
arbitrator as mentioned in this judgement .M/s S.P. Chengalvaraya Naidu (Dead)
by Lrs. Vs Jagannath (Dead) by Lrs. And Ors.
The learned counsel relied on this judgement to press his point that the petitioners have not come with clean
hands before this Board as they suppressed the existence of MOU signed by
them. One who comes to court, must come
with clean hands. It is a cheating
intended to get an advantage. A litigant who approaches the court is bound to
produce all the documents executed by him which are relevant to the litigation.
If he withholds a vital document in order to gain advantage on the other side
then he would be guilty of playing fraud on the court as well as on the
opposite party. The petitioners in this
case did not disclose that they had signed MOU. As such they have not come with clean hands and their petition
should be dismissed on this ground.
6. The Learned
Counsel for respondent also prayed that
the matter for arbitration in accordance with clause 6 of the second MOU being
the arbitration agreement between the effective parties under Section 8 of the
arbitration and conciliation act, 1996 be ordered to be referred for
arbitration.
7. The learned
counsel for petitioner did not file any reply to this application but made oral
submissions. The learned counsel
submitted:- Section 2(1)(h) defines
party “means a party to an arbitration agreement. Section 7 of the Arbitration Act requires an arbitration
agreement to be in writing and to be signed by the parties. Section 8 refers to powers of the judicial
authority to refer the “parties” to arbitration where there is an arbitration
agreement. The learned counsel also
pointed out the provisions of Section 7(4)(a) of the arbitration act which
requires a document to be signed by the parties. He is submitted that the agreement has been signed by Shri Rajiv
Arora CMD of M/s Datapro Information Technology Ltd. and Datapro Info world
Ltd. The second signatory is Mr. Ashok Aggarwal and the third signatory is Mr.
Rajesh Kukreja. He further submitted
that in the judgement of Bhadesh Kantilal Shah V. Magoteaux
International
and Ors (2000)2 Comp LJ 323 (CLB). It
is held that Section 2(1) (h) states that “party” means a party to an
arbitration agreement. All the three
are not parties to all agreements and there is no commonality of parties in all
these agreements. As such, this
petition was dismissed on the ground of their being no commonality of
parties. The learned counsel also
relied on same point on the CLB judgment in the case of Machino Plastic Ltd. Vs
Kaparo Maruti Ltd where there was no commonality in the parties who signed the
agreement. The third judgement of
Madras High Court in the case of Gowri Spinning Mills Ltd Vs. Adimoolam and
Anr. 2002 (Supp.) Arb. LR 375 (Madras) was also relied that when the company is
not a party to the arbitration agreement, Section 8 of the Act will not apply. Few other following judgements were cited by
the learned counsel:-
In this decision, it was held that an arbitrator,
notwithstanding any agreement between the parties, would have no jurisdiction
to order winding up of a company since such power is conferred on a High Court
by the Companies Act and referral of a
winding up petition under Section 8 of the arbitration act was
dismissed.
Khandwala Securities Ltd and Ors Vs. Kowa Spinning Ltd. and
Ors.(1999) Comp.Cases (Vol.97)
In this decision,
it was held that a strict interpretation of the provisions of Section 8 of the
arbitration act would indicate that only when the subject matter before the
judicial body is the same as covered in an arbitration agreement, then, such
judicial body would be bound to refer.
It is to be noted that application under Section 8 that in the
application under Section 8 of the Arbitration Act, the role of judicial body
is limited to examining whether the subject matter is covered by an arbitration
agreement and not to examine whether the allegations merit consideration or
not. This can only be done when the
pleadings are complete.
Escorts Finance
Limited Vs. G.R. Solvents and Allied Industries Ltd. and Others (1999) 2
Comp.LJ 534(CLB)
In this decision, it was held that the dispute arising out of these sponsorship
agreement has to be adjudicated by the arbitrator under the sponsorship
agreement and not the Company Law Board in view of the provisions of Section 8
which makes it obligatory for a judicial to refer such disputed arbitration,
unlike the arbitration act according to which a judicial authority had the
discretion to either refer the matter to arbitration or not . Accordingly the matter was referred to arbitrator.
Naveen Kedia and Others Vs. Chennai Power Generation Limited
and Ors.(1999)CLB (Vol.95)
In this decision,
it was held that it is necessary to examine whether the arbitration clause
contained in the principle agreement still exists and if so, then, whether the
matter arising out of or in connection with the supplemental agreement will
also become the subject matter of arbitration.
The arbitration clause contained in the principle agreement covered
disputes arising out of and in connection with the supplemental agreement
also. The parties were refer to arbitration.
8. The learned
counsel for petitioner relying on the above judgments prayed that the
provisions of Section 7 of arbitration act are very clear that the agreement
has to be in writing and between the parties.
Section 8 of the arbitration act provides for referring the parties to
arbitration where there is an arbitration agreement. The petitioners, namely SRG Infotech Ltd are not the party to the
MOU dated 14.6.2000 relied by the respondents. The question of hiding the
provisions of MOU did not arise as the petitioners are not party to this MOU in
question and they had also not signed MOU.
9. I have considered
the pleadings and arguments of the counsels on both sides. The second MOU dated 14.6.2000 has been
signed by Rajiv Arora, Mr. Ashok Aggarwal and Mr. Rajesh Kukreja. The
petitioner company namely, SRG Infotech limited is not a party to this MOU as
no one has signed on behalf of the petitioner company. During the arguments the Learned
Counsel for Respondents mentioned that
after execution of the said MOU and part performance by Mr. Ashok Aggarwal, DIL
issued and allotted to SRG 14,89,500 shares of Rs.10 each and DEPL issued and
allotted to SRG 7,64,900 shares of Rs.10/- each and accordingly the petitioner
company is a party to MOU. It has also mentioned by the counsel for respondent
that in the MOU it is mentioned that the nominees of signatories will also be
the parties. As such, the company
represented by the signatories, namely, Rajesh Kukreja, becomes party to MOU.
10. I am not
convinced with the arguments advanced by the Learned Counsel for Respondents. It is true that some one has to sign an agreement on behalf of
company which is a legal entity but the same is only valid when such a person
has explicit authorization from the company.
The Learned Counsel for
Respondents have not been able to place anything on record that such an
authroisation was given to Mr. Rajesh Kukreja to sign on behalf of petitioner
company. The case laws relied upon in the matter of Naveen Kedia and Ors. Vs.
Chennai Power Generation Limited and Ors and Escorts Finance are not applicable
in this case as the parties to the arbitration agreement (MOU) are not
common. CLB has no discretion but to
refer the case for arbitration under the Arbitration and Conciliation Act,
provided the provisions of Section 7 of
the Arbitration Act are fulfilled. As the parties are not common in MOU in this
case, the question of relegating the parties to arbitration does not arise.
When the company is not a party to the arbitration agreement, Section 8 of
Arbitration Act will not apply. This
has already been held in number of judgments quoted by the Learned Counsel of the petitioner which have been discussed
above.
11. Accordingly, I dismiss CA No.155/2004 inCP
NO.32/2004 and CA No.156/04 in CP NO. 33/04 on the ground that the petitioners
and respondents are not a party to the relevant MOU containing arbitration
clause.
12. Respondent NO.7
has filed application CA No.157/2004 seeking clarification on the order passed
by this Bench granting ‘status-quo’ on 7.6.2004. It is clarified that none of the parties shall write against each
other to bankers or suppliers or other clients etc. It is also clarified that the parties have not been restrained
from carrying out their day to day operations. With these directions,
application CA NO.157/2004 also stands disposed of with liberty to Respondent 7
to file reply to the main petition.
13. The respondents
are directed to file their reply to the petition by 20.8.2004 and rejoinder to
be filed by 1.9.2004. The petition will
be heard on 22.9.2004 at 2.30 p.m.
14. With the above
directions, the applications in question stand disposed of. There are no orders as to cost.
( K.C. GANJWAL )
New Delhi,
Dated
8th July, 2004.