in
Present: 1. Shri S. Balasubramanian, Vice-Chairman.
2. Shri K.K.Balu,
Member.
IN THE MATTER OF COMPANIES ACT, 1956 (1 OF 1956)
AND
IN THE MATTER OF SECTION 8 OF ARBITRATION & CONCILIATION
ACT, 1996
AND
IN THE MATTER OF M/S GTP
GRANITES LIMITED
1. M/s GTP Granites Limited
2. Shri S.Muthurajan … APPLICANTS
RESPONDENTS
Vs
1. M/s Aurora Trading Limited
2. M/s Harndale Granites Limited
3. Shri K. Raghuveer
4. M/s Harndale (U.K.) Limited … RESPONDENTS
PETITIONERS
5. Shri K.Kamalakannan
6. Shri J.Jaya Singh
7. Shri R.Sivasubramanian … RESPONDENTS
RESPONDENTS
PRESENT ON BEHALF OF PARTIES:
1. Shri T.R.Rajagopalan, Sr. Advocate … for Applicants.
2. Shri T.Poornam, Advocate … for Applicants.
3. Shri K.Manoj Menon, Advocate … for Applicants.
4. Shri Arvind P.Datar, Sr. Advocate … for Respondents 1 to 4.
5. Shri R.Senthil Kumar, Advocate … for Respondents 1 to
4.
O R D E R
(DATE
OF FINAL HEARING: 05.06.2002)
K.K.
BALU:
1.
In the Company Petition filed
under Section 397/398 of the Companies Act, 1956 (“the Act”), alleging acts of
oppression and mismanagement in the affairs of M/s GTP Granites Limited (“the
Company”), the respondents have filed an application under Section 8 of the
Arbitration and Conciliation Act, 1996 (“the Act, 1996”) to order and direct
that the disputes raised by the petitioners in the Company Petition be referred
to arbitration in accordance with Clause 9 of the Shareholders’ Agreement dated
28.01.1993.
2.
The acts complained of in the
petition relate to the following: -
(a) Though the Company had allotted 4,52,978 shares of Rs.10/-
each to the first petitioner, it failed to allot 47,022 shares as per the
Shareholders’ Agreement dated 28.01.1993;
(b) Though the Shareholders’ Agreement was entered on
28.01.1993, the Company could appoint the third petitioner as an Additional
Director only on 14.07.1995;
(c) The Company had raised the authorised capital of the Company to Rs.7 crores at an extraordinary
general meeting held on 07.04.1995 without any notice to the petitioner and a
special resolution amending the Articles of Association was accordingly passed
without even consulting the petitioners. Pursuant to raising of the authorised
capital, the Company had issued and allotted 3,05,770 equity shares of face
value of Rs.10/- each as bonus shares, just before the belated allotment of
shares in May, 1995 in favour of the petitioners.
(d) The Company did not send notices to the petitioners 1 &
2, being shareholders for any general body meetings and furnish copies of
balance sheet and profit and loss account or annual return of the Company from
time to time.
(e) The Company did not send any notice to the third petitioner,
being an additional director for the Board meetings convened by the Company
from time to time.
(f) Though the Company consistently made profits, no dividend
was declared for the years 1994-95, 1995-96 and 1996-97.
(g) The Company declined the opportunity to the petitioners from
participating in its day-to-day affairs either as shareholders or directors.
(h) The Company had taken major policy decisions without the
effective participation of the petitioners.
(i)
The Company had diverted
substantial portion of its business through its own corporate entity to the
detriment of members of the Company.
With the above allegations, the petitioners have sought for
the following reliefs: -
(i)
to appoint an administrator to
supervise the management and regulate the affairs and working of the Company;
(ii) to direct the Company to issue and allot 47,022 equity shares
in the name of the first petitioner and make necessary entries in the register
of members;
(iii)
to direct the Company to issue
and allot bonus shares to the first petitioner in proportion to its
shareholding;
(iv)
to direct the respondents to
give notices to the first petitioner of all general meetings of the Company;
(v)
to direct the Company to give
notices for all its board meetings to the third petitioner;
(vi)
to direct the Company to amend
its Articles of Association effectuating the Shareholders’ Agreement entered
between the parties;
(vii)
to direct the Company to
declare and disburse dividend to the shareholders for the years 1995-96,
1996-97; 1997-98 and 1998-99;
(viii)
to restrain the Company from
taking major policy decisions without the express consent of the petitioners;
and
(ix)
to direct the Company to
adhere to the Shareholders’ Agreement dated 28.01.1993.
3.
Shri T.R.Rajagopalan, Senior
Advocate for the respondents, moving the application, submitted that the
Company engaged in the business of quarrying granite for export purposes had
entered into a Shareholders’ Agreement on 28.01.1993 (Page 40 of typed set of
pleadings) with the fourth petitioner, a limited company incorporated under the
laws of the United Kingdom, in terms of which certain obligations have been
cast on the petitioners as well as the Company. The Company had also on the same day entered into a Marketing
Agreement with the fourth petitioner, thereby the latter agreed to buy back the
products supplied by the Company. In
the meanwhile, the petitioners have approached the CLB invoking the provisions
of Section 397/398 of the Act and alleged certain acts of oppression and
mismanagement in the affairs of the Company, on account of its failure to comply
with the terms of the Shareholders’ Agreement.
Shri Rajagopalan enumerated the acts of oppression and mismanagement,
set out in the company petition.
According to him, the issues that have been raised in the
Company Petition arise out of the Shareholders’ Agreement dated 28.01.1993
entered between the petitioners and the respondents 3 & 4. He drew our attention to the fact that the
allotment of shares are governed by Clauses 1.E and 2.2, delay in appointment
of the third respondent as director by Clause 3.1, Board meetings and notice
regarding Board meetings by clause 3.2 and 8, allotment of bonus shares and
amendment of Memorandum and Articles of Association by Clauses 2.4 & 3.2 of
the Shareholders’ Agreement dated 28.01.1993. The Shareholders’ Agreement
contains an arbitration clause, in terms of which, it is mandatory that any
dispute under the Shareholders’ Agreement should be referred for arbitration in
the light of the provisions of Section 8 of the Arbitration and Conciliation
Act, 1996, especially when the present application has been filed before filing
counter by the Company. In support of
his legal submissions, Shri Rajagopalan relied upon the following decisions: -
(i)
(1999) 97 CC 632 -
Khandwala Securities Ltd. And Others V. Kowa Spinning Ltd. And Others.
(ii)
(1999) 97 CC 636 –
20th Century Finance Corporation Ltd. Vs. RFB latex Ltd. And Others.
(iii)
(1999) 2 Comp LJ 534 (CLB) – Escorts Finance Limited
Vs. G.R.Solvents And Allied Industries Ltd. And Others.
(iv)
(1998) 4 Comp LJ 128 (CLB) – Naveen Kedia And Others
Vs. Chennai Power Generation Ltd. And Others.
- to show that a strict interpretation of the provision of
Section 8 of the Arbitration and Conciliation Act, 1996 indicates that when the
subject matter before the judicial body is the same as covered in an
arbitration agreement, such judicial body would be bound to refer the parties
to arbitration.
(v)
(2002) 1 Supreme Court
Cases 203 – Kalpana Kothari Vs. Sudha Yadav and others & Parasnath Builders
Pvt. Ltd. Vs. Sudha Yadav and Others. –
to show that Section 8 of the Act, 1996 mandates that the judicial authority
before which an action has been brought in respect of a matter, which is the
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.
(vi)
(2000) 4 Supreme
Court Cases 539 – P.Anand Gajapathi Raju And Others Vs. P.V.G. Raju and others
– to show that the language of Section
8 of the Act, 1996 is pre-emptory. It
is obligatory for the Court to refer the parties to arbitration, in terms of
the Arbitration Agreement in the event of the Arbitration Agreement covers all
the disputes between the parties in the proceedings before the Court.
(vii)
AIR 1974 ANDHRA
PRADESH 278 (V 61 C 56) – M/s
Srivenkates-wara Constructions and others Vs. The Union of India – to show that the Court would refer the dispute to
arbitration provided it is satisfied that the applicant is ready and willing to
proceed to arbitration before the commencement of the proceedings as also at
the times of the application.
4.
Shri Arvind P.Datar, Senior
Advocate for the petitioners has challenged the maintainability of the
application on the following among other grounds: -
(i)
The petitioners have filed the
Company Petition complaining of various acts of oppression and mismanagement to
vindicate their statutory rights as shareholders of the Company seeking
statutory remedies, but the arbitration proceedings cannot redress these
grievances of the petitioners.
(ii) The
Shareholders’ Agreement dated 28.01.1993 has been signed by the fourth
petitioner and respondents 1 & 2.
The third respondent has signed the agreement as director of the fourth
respondent and not in his individual capacity.
Thus, the third respondent is not a party to the Shareholders’
Agreement. The first respondent which
is a distinct legal entity is also not a party to the agreement.
(iii) The
reliefs sought in the petition can only be granted by the CLB in exercise of
its powers under Section 402 of the Act and not in arbitration proceedings.
(iv) The
provisions of Section 8 of the Act, 1996 will apply with regard to the disputes
between the parties to the arbitration agreement and cannot deal with matters
beyond the scope of the agreement. The
disputes between the parties raised in the Company Petition are independent of
the Arbitration Agreement dated 28.01.1993.
(v) The
petitioners have leveled charges of diversion of funds against the promoter
directors of the Company, who are not parties to the Shareholders’ Agreement
and, therefore, cannot be parties to the arbitration proceedings.
(vi) The
application deals with merits of the company petition extensively and stated
their submissions before the CLB subjecting themselves to the jurisdiction of
the CLB.
Shri Datar, in support of his legal submissions, relied upon
the following decisions: -
(i)
(1999) 3 Comp LJ 161
(SC) – Haryana Telecom Limited Vs. Sterlite Industries (India) Ltd. – to show that sub-section (1) of Section 8 of the Act, 1996
provides that where the judicial authority before whom an action is brought in
a matter, will refer the parties to arbitration, the said matter in accordance
with the arbitration agreement. This
postulates that what can be referred to the arbitrator is only that dispute or
matter which the arbitrator is competent or empowered to decide.
(ii) AIR
1969 SUPREME COURT 823 (V 56 C 149) – Official Trustee, West Bengal and others
Vs. Sachindra Nath Chatterjee and Another – to show that the judicial authority should have jurisdiction
to decide the issue presented before them.
(iii) (1999)
97 CC 632 – Khandwala Securities
Ltd. And Others Vs. Kowa Spinning Ltd. And others – to show that the
prayer to refer the parties to arbitration must be declined in case the
allegations in the company petition are independent of the sponsorship
agreement.
(iv) (1977)
47 CC 279 – O.P. Gupta Vs. Shiv General Finance (P.) Ltd. And Others – to show that the provisions of Section 397/398 and 434 give
exclusive jurisdiction to the Court and the matters dealt with thereby cannot
be referred to arbitration. No
arbitrator can possibly give relief to the petitioner under Sections 397 and
398 or pass any order under Section 402 or Section 403.
(v) Madras
Refineries Limited Vs. Southern Petrochemicals Industries Corporation Limited
and others
Southern Petrochemical Industries Corporation Limited Vs.
Madras Refineries Limited–- to show
that the Court before referring the parties to arbitration must be satisfied
that the conditions of Section 8 are fulfilled, which are as under: -
(1) The legal proceeding brought before it is in respect of
a matter, which is the subject matter of an arbitration agreement. (2)
An application for reference to arbitration is made by a party to the
proceeding, who is also party to that arbitration agreement. (3) The
application is made not later than when submitting its first statement on the
substance of the dispute, and (4) the application is accompanied by the
original or duly certified copy of the arbitration agreement.
(vi) 1999-3-L.W.
322 – M/s Shree Ganesh Spinners Vs. Syndicate Bank, – to show that the Court can stay the suit under Section 8
only if the subject matter of the Arbitration Agreement and the proceedings
before the judicial authority are one and the same.
(vii) (1977)
47 CC 276 - In re KARE P. LTD. :
Surendra Kumar Dhawan And Another V. R.Vir And Others – to show that the right of shareholders under Section 397
or 398 is a statutory right which by section 8 of the Act, 1996 cannot be
ousted by a provision in the Articles of Association of the Company.
(viii) (1985) 58 CC 113 – Manavendra Chitnis And Another Vs. Leela Chitnis
Studios P. Ltd. And others – to show that the matter which can form
part of the petition under Section 397/398 cannot be the subject matter of an
arbitration, for an arbitrator can have no powers such as conferred on the
court by Section 402.
5.
We have considered the
pleadings and arguments of the senior counsel.
It is on record that respondents No.1 & 2 as well as petitioner No.4
(in Company Petition) entered into a shareholders agreement on 28.01.1993 and
that clause 8.3 of the agreement provides for arbitration in respect of
disputes arising out of the said agreement.
Clause 8.3 reads as under: -
“All disputes and differences relating to claims and contracts
between the parties hereto affecting this agreement including disputes
concerning the validity, interpretation or application thereof or of agreement
of assignment as far as practicable shall be sought to be settled amicably by
the parties and in the event of the failure of the parties to do so the same
may be referred to one arbitrator, if agreed to by the parties, or two
arbitrators to be appointed one by each party hereto and the arbitration
proceedings shall be in terms of the proposed Indian Arbitration Act, 1940.”
Section 8 of the Arbitration and Conciliation Act, 1996
provides that “a judicial authority before which an action is brought in a
matter which is the subject of an arbitration agreement shall, if a party so
applies not later than when submitting his first statement on the substance of
the dispute, refer the parties to arbitration”.
This application under Section 8 of Arbitration and
Conciliation Act, 1996 was filed in July, 1999 seeking for referring the
parties to arbitration, in terms of the arbitration clause in the Shareholders’
Agreement dated 28.01.1993 as extracted above.
One of the main requirements of Section 8 of the Arbitration
and Conciliation Act, 1996 is that a party should apply not later than when
submitting his first statement on substance of the dispute. In the present case, we find that the
application filed under Section 8 of Arbitration and Conciliation Act, 1996
extensively deals with the merits of the case.
We find that of the 18 pages of the application, the applicant has
countered, with extensive details, the various allegations in the petition,
from pages 5 to 14. A strict
interpretation of Section 8 of the Arbitration and Conciliation Act, 1996 would
indicate that if the merits of the case is dealt with even in the application
under Section 8 of the said Act, the requirement of filing an application not
later than when submitting first statement on the substance of the dispute, is
not satisfied. Therefore, in the present
case, since the applicant has extensively dealt with the merits of the case in
the application, the provisions of Section 8 relating to referring the party to
arbitration has not been satisfied and as such this application is dismissed.
If the respondents desire to file any additional affidavit
to deal with merits of the case further, they are liberty to file such an
affidavit on or before 30.09.2002 and rejoinder will be filed by
15.10.2002. The petition will be heard
on a date to be notified.
(K.K.
BALU) (S. BALASUBRAMANIAN)
Dated this the 9th day of August, 2002