BEFORE THE COMPANY LAW BOARD

PRINCIPAL BENCH

NEW DELHI

C.P.No. 76/1999

C.A.No.97/2000

 

                 Present: 1. Justice A.K. Banerji, Chairman

2. Shri S. Balasubramanian, Vice Chairman

 

In the matter of Companies Act, 1956- Sections 397,398

AND

In the matter of the Arbitration & Conciliation Act,1996-Sec.8

AND

In the matter of M/S Hind Samachar Limited

 

PETITIONERS:

Shri Vijay Kumar Chopra & 4 Ors.

 

RESPONDENTS:

The Hind Samachar Ltd. & 6 Ors.

 

Present on behalf of parties:

1.      Shri S.N. Mookherjee, Advocate              .. for petitioners

2.      Shri Santosh Paul, Advocate                        .. for petitioners

3.      Shri Arun Kathpalia, Advocate                        .. for petitioners

4.      Shri Shellka Arora, Advocate                        .. for petitioners

5.      Shri H.L. Tikku, Advocate                        .. for respondents

6.      Shri Kamal Nijhawan, Advocate              .. for respondents

7.      Shri Navin Chawla, Advocate              .. for applicant in CA 195/2000

 

O R D E R

(Date of final hearing: 25.10.2000)

 

S.BALASUBRAMANIAN:

 

1.     In this order we are considering CA 97 of 2000 filed under  Section 8 of the Arbitration and Conciliation Act of 1996 ( hereinafter referred to as the Act)   by the respondents in CP No.76 of 1999.  This petition filed under Sections 397/98 of the companies Act, pertains to the affairs of M/S Hind Samachar Limited ( the company) in which both the petitioners' group as well as the respondents' group hold equal percentage of shares. 

2.     When the petition was filed, the petitioners sought for certain interim reliefs.  In the hearing held on 24.8.1999, the respondents sought our permission to file an application under Section 8 of the Arbitration Act.  They were given time upto 4.9.99 to file the said application. Thereafter, there were a number of hearings and further applications were made by the petitioners and the respondents.  Since the company consists of only two groups of shareholders with equal representation on the Board and the Articles providing for affirmative votes on vital matters by both the groups, we suggested to  the parties that they should attempt at an amicable settlement of the disputes.  A consensus emerged that the assets of the company could be divided equally between the two groups and towards this end, various proposals were considered.  However, in spite of our best efforts, during subsequent hearings, the disputes could not be solved amicably.  On 16.5.2000, the respondents mentioned the instant application dated 12.5.2000 and accordingly arguments were advanced on this application and concluded on 25.10.2000.

3.     Shri Tikku appearing for the applicant argued as follows: Both the groups of shareholders entered into a shareholders' agreement on 8.2.1997 wherein various terms were agreed upon by the parties to regulate the conduct of the affairs of the company. Most of the terms of this Agreement were incorporated in the Articles of Association of the company.   In Article 33 of the Agreement, it has been provided that all disputes arising out of the agreement would be referred to Arbitration. The same Article has also been incorporated in Article 190 of the Articles of Association of the company.  Since the disputes raised in the present petition relate to the affairs of the company, in view of the provisions in the Articles, these disputes should be referred to Arbitration in terms of Section 8 of the Arbitration Act. Since the applicant has not so far filed any reply on the substance of the petition and since at the out set itself i.e. on 24.8.1999 when the petition was taken up for ad interim relief, the applicant had mentioned about filing of the instant application, the requirements of Section 8 of the Arbitration Act have been fulfilled and therefore the matter should be referred to Arbitration.   He pointed out that in terms of Section 8 of the Arbitration Act, a judicial authority is bound to refer the parties to Arbitration on the application of one of the parties if there is an arbitration agreement between the parties.  In the present case, he pointed out that not only the agreement between the parties provides for arbitration, but even the Articles of the company stipulate the same. 

4.     Shri Mookherjee, Advocate appearing for the petitioners argued as follows:  This application should be dismissed for the reasons that  the applicant had taken part in the proceedings by filing an extensive reply on the substance of the petition when they filed the reply to the interim application, that there is no binding arbitration agreement between the parties and thirdly the matters covered under Sections 397/398 of the Act cannot be a subject matter of arbitration agreement. Since Section 8 of the Arbitration Act stipulates that application for referring the parties to arbitration should be made before filing a reply on the substance of the petition, this requirement has not been fulfilled in the present case.  Further, even though the respondents were directed to file the said application by 4.9.1999, instead of doing so, they chose to file a detailed reply on the interim application,  wherein they had also reserved the right  to file a further detailed reply to the petition.  A perusal of the reply to the interim application would show that practically all the allegations made in the petition  have been dealt with.  Therefore, this application should be dismissed in limine.   Referring to the     decision   of      Delhi      High    Court  in  1998  5  Company  Law  Journal     509,  he pointed                  out that in that case the reply to an interim application has been treated as the first statement and accordingly  the application for arbitration was dismissed.    In Suresh Kumar Jain Vs. Hindustan Ferro Industries Ltd. ( 1998  3 CLJ  501), the CLB  had dismissed an application under Section 8 of the Arbitration Act on the ground that the applicant therein had filed a substantive reply to an interim application.  In Anand Gajapathi Raju Vs. P.V.G. Raju ( 2000  4  SCC   539 ), the Supreme Court has held that once the other party has submitted his first statement of defence, then, the person who has brought action before the court has a right to have the dispute adjudicated by that court.  Therefore, in the present case, since the respondents had filed their first statement of defense by filing a reply to the interim application, the petitioners have the right to have the disputes adjudicated by the CLB.  The respondents filed their reply to the interim application on 13.9.1999 and later they themselves filed 3 other applications for interim relief on 15.12.1999, 18.1.2000 and 3.3.2000.   Thus, they have effectively participated in the proceedings and subjected themselves to the jurisdiction of the CLB.  Therefore, they cannot now invoke the provisions of Section 8 of the Arbitration Act and seek referring the disputes to arbitration.

5.     He further submitted as follows: There is a question as to whether there is a valid and binding arbitration agreement between the shareholders and the company.  The agreement dated 8.2.97 was between two group of shareholders and the company was not a party.  Since the petition has been filed alleging oppression and mismanagement in the affairs of the company and since the company is not a party to the shareholders' agreement,  the terms of the said agreement are not binding on the company. In Bhardesh Kantilal Shah v Magotteaux International ( 2000 2 CLJ 323), the CLB itself has held that if a company is not a party to the arbitration agreement, then the petition filed under Sections 397/98 in respect of the company cannot be referred to arbitration. The shareholders' agreement itself has, in some of the provisions, provide for enforcement of these provisions through a court of law.  For instance, the agreement provides for invoking a Court's jurisdiction in Article 2.8 relating to voting on resolutions and in  Article 10A relating to equal division of 2.4% shares held by others as and when they are acquired by the parties.  Further, Article 2.8 very clearly provides that the rights and remedies provided in the agreement are cumulative and not exclusive of any rights or remedies provided by law. Thus, a strict rule of construction of the agreement/Articles would show that there is no binding arbitration agreement covering all matters in the agreement as the right to invoke the court’s intervention has also  been provided in respect of certain matters.   Further Article 33 relating to Arbitration is not strictly an Arbitration Agreement but it is only an agreement to agree for arbitration as it only provides that either of the parties may refer to arbitration in cases of  disputes or differences arising out of the agreement.  The word      " may" indicates that it is not a binding arbitration agreement.  In the same way,  in the Articles of Association of the company, recourse to a court of law has been provided in Article 4 ( c ) ( iv ), Article 71 (a) and Article 191.  Further, even in Article 190 relating to Arbitration, the provision made is that the aggrieved party may refer the dispute to arbitration.  In Willington Associates Limited  Vs. Kirit Mehta ( 2000  4  SCC  272 ), the Supreme Court has held that if the parties agree that they may refer a dispute to arbitration, then, such an agreement cannot be considered to be an arbitration agreement in terms of Section 7 of the Arbitration Act.  Only when an arbitration agreement fulfills the requirements of Section 7 of the Arbitration Act, then,  recourse to Section 8 of the Arbitration Act is permissible.  As has been held in Lloyds Steel Industries Limited Vs. ONGC Limited  (  AIR  1997  Bom  337 ), the court, before referring the parties to arbitration in terms of Section 8, should satisfy itself that there is a valid arbitration agreement.  Even otherwise, it has been held  by Delhi High Court  In re: Kare Pvt. Ltd.( 47 CC 276) that arbitration agreement in the Articles of Association of a company cannot take away the statutory rights of shareholders as   it would be against the provisions of Section 9 of the Companies Act.  The same proposition has also been reiterated in  O.P.Gupta  v Shiv General Finance P Ltd (47 CC 276). 

6.     He further submitted as follows: It is the statutory right of a shareholder to invoke the provisions of Sections 397/398 of the Act.  The provisions of Sections 397/398 are a complete code and the acts of oppression and mismanagement cannot be considered or adjudicated upon by an arbitrator.  When a special statutory right has been created by the Act, then, only the forum designated by the Act  can be approached for enforcing the right. Wherever such a specialized forum has been created, its jurisdiction cannot be ousted by a private agreement for arbitration.  it has been held that the matters could be considered by such specialized forum cannot be a matter for arbitration.  In Shankar Lal Laxminarayan Rathi  Vs.  Udhey Singh Dinkarrao Rajurkar ( AIR  1976  Bom. 237 ), it has been held that the jurisdiction of the  Rent Controller under the Rent Control Order cannot be taken away by an arbitration agreement.  In Osprey Undertaking Agencies Limited  Vs.  ONGC  ( AIR 1999  Bom.  173), it has been held that matters covered in an Admiralty suit cannot be the  made subject matter of arbitration agreement. In Gopi Rai  Vs. Baij Nath Rai  ( AIR 1930  All 840), it has been held that probate proceedings cannot be referred to arbitration and this has been reiterated by the Supreme Court in Chiranjilal Shrilal Goenka  Vs. Jasjit Singh ( JT  1993  (2)  SC   341) that probate court alone has exclusive jurisdiction in probate matters and the same cannot be referred to arbitration.   In Haryana Telecom Limited Vs.  Sterlite Industries (India)Ltd.  ( AIR 1999  SC  2354 ), it has been held that the powers to order winding up is in the exclusive jurisdiction of the court and an arbitrator would not have any jurisdiction to order winding up of a company. These cases would clearly indicate that CLB having been given the exclusive jurisdiction in respect of redressal of oppression and mismanagement can alone deal with a petition under Sections 397/398 and an agreement to refer these matters to arbitration cannot be enforced.  The powers exercisable by the Company Law Board under Section 402 of the Act is so wide that it could pass orders even overriding the provisions of the Act, Memorandum & Articles of a company, as held by the Apex Court in Cosmos Steel Ltd V Jai Ram Gupta ( 48 CC 312). Such a  power, an arbitrator being a private person, cannot exercise. Further, there is deadlock in the company arising our of affirmative votes by both the groups as provided by the Articles and such a dead lock situation can be resolved only by the CLB by exercising its powers under Section 402 and an arbitrator cannot do so.  In   view of this, this application should be dismissed.

7.     Shri Tikku, replying to the arguments of Shri Mookherjee, submitted as follows:  Since the shareholders' agreement relates only to the affairs of the company, it is immaterial that the company is not a party to the agreement.  Further, practically all the terms of the shareholders' agreement have been incorporated in the Articles of the company and therefore in terms of Section 36 of the Companies Act, these provisions are binding on all the shareholders.  The binding nature of the Articles of Memorandum on the members has been confirmed by the decisions of the Supreme Court in V.B. Rangaraj Vs. V.B. Gopalakrishnan  ( AIR  1992  SC  453 ) and by Madras High Court  in Madhav Ramachandra Kamath  Vs. Canara Banking Corporation Ltd.  ( AIR  1941  Mad. 354 ). Therefore, when the Articles provide for referring disputes in the affairs of a company to arbitration, then, recourse to Section 8 of the Arbitration Act is fully permissible and justified.  The CLB cannot look into whether there is a valid arbitration agreement or not.  The provisions of Section 8 of the Arbitration Act are different from Section 45 of the same Act as in terms of Section 45 of the said Act, the validity of the Arbitration Agreement has to be satisfied by the court.  But in respect of Section 8 of the Arbitration Act, it is for the arbitrator to decide about the validity of the arbitration agreement by virtue of Section 16 and not for the Court to decide. The observation of the Apex court in  Wellington Associates Limited case (Supra) that the court should satisfy itself about the validity of the arbitration agreement arose in the context of the provisions of Section 11 and 16 of the Arbitration Act and not with reference to Section 8. Further, the word "may" that has been used in respect of the arbitration has to be read as "shall".  Once it is done so, it will be apparent that the parties have decided to refer all the disputes to arbitration. A reading of the entire agreement/Articles of Association of a company would show that it is the desire of the shareholders to resolve all the disputes in relation to the affairs of the company either through conciliation or arbitration. All the terms of the agreement should be read along with the warrantees provided in the agreement. In regard to the powers of the arbitrator, it is incorrect to say that the arbitrator cannot adjudicate on the disputes alleged to be acts of oppression and mismanagement.  The powers of arbitrator under the Arbitration Act is wide enough to cover even deadlock situations. The various reliefs sought for at  page 37 of the petition could be considered and granted by the arbitrator. In V.H. Patel & Co.  Vs. Harubhai Hemabai Patel ( 2000  4  SCC  368) the Apex court has held that even in case of disputes between the partners of a partnership firm, the same could be referred to arbitration and the arbitrator would have the powers to order dissolution of the firm. The foundation of the petition is that there is dead lock in the company. Article 21.2.3 of the agreement provides that in a deadlock situation, if  the same is not  resolved through arbitration or conciliation, then the agreement could be terminated. This would show that in case of deadlock, the matter should be referred to arbitration. Therefore, this matter should be referred to the arbitrator as per the  agreement as well as per the provisions of Article 190 of the Articles of Association of the company.

8.      His further submissions were: The reply filed by the respondents relates only to the interim application and therefore cannot be considered to be a defense in substance especially when the CLB itself had directed the respondents to file a detailed reply on the petition.  Since 397/398 proceedings are discretionary in nature, the statutory right vested under Section 8 of the Arbitration Act cannot be ignored.   The mere delay on the part of the respondents to file this application cannot be a ground for dismissing the application especially when the Arbitration Act does not specify any time limit other than stipulating that this application should be filed before submitting the first statement on the substance of the dispute. All along, the respondents have been participating in the proceedings before the CLB only on the issue relating to amicable settlement of the disputes and hence the present application was filed belatedly. In Food Corporation of India Vs. Yadav Engineer Contractor  ( 1982  2  SCC  499 ), the Supreme Court has held, with reference to Section 34 of the 1940 Arbitration Act, that appearing and contesting the interlocutory application by seeking either vacation/modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of the arbitration agreement.  In Law of Arbitration and Conciliation by Justice Dr. P.T. Saraf, it has been laid down that it is immaterial whether by the time the application under Section 8 of he Arbitration Act is made, whether the applicant had or had not taken any steps in the legal proceedings before the judicial authority as long as the first statement on the substance of the dispute had not been made.  In 20th Century Finance Corporation Vs. R.F.B Latex Limited ( 1997  CC  636 -CLB ), the CLB itself has held that participation in the proceedings for amicable settlement of disputes cannot be considered as a statement on the substance of the dispute. It has been held by the Apex Court in          P. Anand Gajapathi Raju  Vs. P.V.G. Raju ( 2000  4  SCC  539 ) that even while a civil action is pending, an arbitration agreement could be entered into and once an application is made afterwards for referring the parties to arbitration, the court is bound to refer the parties to arbitration.  Therefore, there is no merit in the contention of the petitioners that in view of a reply having been filed in respect of an interim application, the matter cannot be referred to arbitration.

9.     We have considered the pleadings and arguments of the counsel. First we shall deal with the objection of the learned counsel for the petitioners that matters covered in Sections 397/398 of the Act cannot be the subject matter of an arbitration. He cited a number of cases on this aspect.  In Magotteaux case (supra) a similar objection was raised before this Board, on an application under Section 45 of the Arbitration Act, citing a number of cases, including those cited by the learned counsel for the petitioners in the present petition and on considering all these cases, this Board summarized its finding as follows:

·        the right to file a petition under Section 397/98 arises out of commercial relationship between a shareholder and the company :

·        the word “action” would cover a proceeding under Section 397/98:

·        while considering a petition under Sections 397/398, the Company Law Board is seized of an action:

·         proceedings under these Sections are not outside the purview of Section 45 of the Arbitration Act:

·        the principles applicable to a winding up proceeding, need not necessarily apply to a proceeding under Sections 397/98:

·        the provisions of the Arbitration Act are not repugnant to the provisions of Section 9 of the Companies Act.

·        once the Company Law Board is convinced that the matters governed in a petition under Sections 397/398 of the Act relate to or arise out of or in connection with an arbitration agreement and that the reliefs appropriate to the facts of the case could be determined/granted by an arbitrator, then, the Company Law Board is bound to refer the matter to arbitration in terms of the mandatory provisions of Sections 45 of the Arbitration Act provided that the agreement is not null and void, inoperative or incapable of being performed:

·        If any of the requirements of Section 45 is not satisfied, then, the CLB can decline to refer the parties to Arbitration:

·        the judicial authority  has to prima facie, come to the conclusion, that the requirement of Section 45 have been fulfilled, before referring the parties to Arbitration.      

10. In the present case, since we are dealing with Section 8 of the Act, the same observations as are relevant to Section 45 are applicable. In addition, in number of cases the Board had taken the  view that by virtue of the mandatory nature of the provisions of Section 8 of the  Arbitration Act, once the ingredients of this Section are satisfied, then, even the matters covered under Sections 397/398 of the Act shall have to be referred to arbitration.           

 12.The next objection taken by the learned counsel for the petitioners is                   that there is no binding arbitration agreement either in the Articles or in the Agreement. The question has been raised as to whether the CLB has the jurisdiction to examine the validity of the arbitration agreement. While Shri Mookherjee cited Lloyds Steel case ( supra) that before referring the parties to arbitration in terms of Section 8 of the Arbitration Act, the court should be satisfied about the existence of the Arbitration agreement   Shri Tikku argued that it is for the arbitrator to decide about the validity/about the existence of the arbitration agreement in terms of Section 16.   Section 2 (b) defines an arbitration agreement as one referred to in Section 7 of the Arbitration Act. Section 7 reads : " In this part, " Arbitration Agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not".  Section 8 of the Arbitration  Act reads as follows:  " 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 power or duty to refer the parties to arbitration in terms of Section 8 would arise only when there is an arbitration agreement in terms of Section 7. In other words, the foundation for making an application under Section 8 is the arbitration agreement and unless such an agreement is in existence, the question of applying under Section 8 of the Arbitration Act does not arise. It is evident from Section 8 (2) that the application shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.  The very purpose of filing a copy of the arbitration agreement along with the application is to satisfy the court that there is actually an arbitration agreement. As is evident from Section 8 (1), the Arbitration Agreement should cover the matter in respect of which the action has been brought in. Therefore, the court has to satisfy itself that there is not only a valid arbitration agreement, it has also to satisfy itself that the said agreement covers the matter before it. Therefore, as held in Llyod Steel Case, the CLB would have no jurisdiction to refer the matter to arbitration in terms of Section 8 unless otherwise, there is a binding and valid arbitration agreement in existence. As far as the contention of Shri Tikku that such an examination as to the validity of the arbitration agreement would arise only in terms of Section 45 of the Act is concerned, we are unable to accept that contention.  Section 45 does not deal with the  validity/ existence of an agreement but it only deals with the duty of the court to see whether the agreement which s in existence  is null and void, inoperative or incapable of being performed. Therefore, we are of the firm view that if there is no valid arbitration agreement, recourse to Section 8 of the Act is not permissible. According to us, the provisions of Section 16 regarding the  powers of an arbitrator to decide on the existence/validity of an arbitration agreement would arise when one of the parties appoints an arbitrator and the other contests the existence/validity of the agreement.  Further, as pointed out by the Apex court in Wellington case at para 15,  Section 16 does not preclude a judicial body from examining the existence of an arbitration agreement especially when an application is made to it on the strength of the agreement.  

13. Now we shall examine whether there is a valid and binding arbitration agreement.  The relevant portions of Article 33 of the Agreement and Article 190 of the Articles of Association of the company dealing with Arbitration read as follows:  “Any claim, dispute, deadlock or controversy which cannot be resolved through conciliation within 15 days or such extended period as parties may unanimously agree, a party may refer the claim, dispute, or difference to arbitration as herein under provided in accordance with the New Indian and Arbitration Act, 1996.  The arbitration shall be held in a city where the registered office of the company is situated.  There shall be three arbitrators in arbitration proceedings. Group A and Group B shall have the right to appoint one arbitrator each and the two such appointed arbitrators shall appoint the third arbitrator.  The applicable law shall be Indian law.  The cost and expenses of such arbitration shall be allocated between and borne by the parties".

14. According to Shri Mookherjee,  the term “may”  as used with reference to arbitration, indicates that a party has the option to refer the disputes to arbitration and therefore arbitration  is not mandatory. If it is not mandatory, then it is not a valid arbitration agreement entitling a party to invoke Section 8 of the Act. However, according to Shri Tikku,  the word " may" has to be read as " shall" and if done so, then it is apparent that it is mandatory to resort to arbitration.   We have the benefit of the decision of the Apex Court in Wellington Associates case, wherein  an  agreement with the following clauses came up for consideration: 

·        “ 4. It is hereby agreed that if any dispute arises in connection with these presents, only courts in Bombay would have jurisdiction to try and determine the suit and the parties thereto submit themselves to the exclusive jurisdiction of the courts in Bombay.” 

·        “5. It is also agreed by and between the parties that any dispute or differences arising in connection with these presents may be referred to arbitration in pursuant to Arbitration Act, 1940 by each party appointing one arbitrator and the arbitrators so appointed selecting an umpire.  The venue of arbitration shall be at Bombay".

15.Cosidering the two above clauses, the Court observed  as follows: "It is contended for the petitioner that the word "may" in clause 5 has to be construed as " shall".  According to the petitioner's counsel, that is the true intention of the parties.  The question then is as to what is the intention of the parties. The parties, in my view, used the words "may" not without reason.  If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the civil courts at Bombay are to be approached by way of a suit.  Then follows clause 5 with the words " It is also agreed" that the dispute "may" be referred to arbitration implying that parties need not necessarily go to the civil court by way of suit but can also go before an arbitrator.  Thus, clause 5 is merely an enabling provision as contended by the respondents.  I may also state  that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like clause 4 which discloses a general intention of the parties to go before a civil court by way of suit.  Thus, reading clause 4 and clause 5 together, I am of the view that is not the intention of the parties that arbitration is to be the sole remedy.  It appears that the parties agreed that they can " also" go to arbitration in case the aggrieved party does not wish to go to a civil court by way of a suit.  But in that event, obviously, fresh consent to go to arbitration is necessary.  Further, in the present case, the same clause 5, so far as the venue of arbitration is concerned, uses the word "shall".  The parties, in my view, must be deemed to have used the words "may" and " shall" at different places, after due deliberation."

     A reading of the above would show that if the parties have not intended that the  arbitration would be the  sole remedy for resolution of the disputes, then, such an agreement cannot be considered to be a valid arbitration agreement in terms of Section 7 of the Arbitration Act. Article 190 provides that the parties could first try to resolve the disputes through conciliation, failing which one party may seek arbitration. Further, in some of the provisions of both the agreement as well as the  Articles of the company, as pointed out by Shri Mookherjee, provision has been  for invoking the jurisdiction of the Court .  The Article containing the provision for arbitration has not excluded those Articles which provide for remedy through the court.  Further, in the agreement, Article on Non Waiver, provides  "The rights and remedy herein provided are cumulative and not exclusive of any rights or remedies provided by law". Thus, we find that the observation of the Supreme Court in Wellington that arbitration has not been made the sole remedy to resolve the disputes is directly applicable in this case. Therefore,  we are in agreement with Shri Mookherjee that there is no valid and binding  arbitration agreement to entitle the respondents to invoke the provisions of Section 8 of the Arbitration Act.

16. In view of our finding that there is no valid and binding arbitration agreement satisfying the provisions of Section 7 of the Arbitration Act, we could dismiss this application without considering the other objections of the learned counsel. Yet, since the petitioners have also raised an objection regarding  non fulfillment of the provisions of Section 8, we shall examine the same.

17. As far as the requirements of Section 8 of the Arbitration Act to file an application for referring the parties to arbitration before filing a statement on the substance of the dispute, we find that the respondents had filed a reply in September in relation to the interim reliefs sought for by the petitioners. In the petition, the petitioners have made certain allegations in regard to the Board Meetings on 28th November, 1998, 5th December, 1998, 8th December, 1998, 31st December, 1998 and 7th January, 1999.  According to the petitioners, the non attendance of the respondent directors in some of these meetings has created a situation of deadlock.  The interim relief sought for by the petitioners related to appointment of non key personnel, Taking over land at Chandigarh, Gurgaon and Anandpur, commencement of the unit at Jaipur and making available information/details to the Managing Directors of the Units managed by the respondents.    The first paragraph of the  reply in regard to the interim reliefs states: "The present reply is being filed in respect of the interim prayers limited to the points for interim relief that were mentioned on behalf of the petitioners before this Hon'ble Board on 20.08.99.  The Respondents crave leave to reserve their right to file a detailed reply in relation to the application for interim relief and if necessary in relation to the petition filed by the petitioners under sections 397 and 398 read with section 402 and 403 of the Companies Act, 1956.  It may however be pertinent to mention that as per the inter-se Agreement of the Shareholders, any matters or questions, disputes or controversies that were ever to arise in relation the Shareholders Agreement of 09.02.97, ought to the endeavored to be settled mutually by conciliation and through the involvement of members of Group "A" and "B" and thereafter if necessary by the course of arbitration." 

18. From the second paragraph to the ninth paragraph, the respondents have given their own version of the Board Meeting convened on 28.7.1998, 5.12.1998, 8.12.1998 and later on dealt with the matter relating to the interim reliefs.  Since the respondents have dealt with the main issues raised in the petition, in their interim reply, it has to be taken as a statement on the substance of the petition.  If it is so, then, the respondents have not fulfilled the requirements of Section 8 of the Arbitration Act that application under this section has to be filed before submitting the first statement on the substance of the disputes.  Further, it is also on record that respondents having expressed their desire to file this application as early as on 24.8.1999, did not do so till  12.5.2000.   During this long period of 9 months, they themselves have filed 3 applications - one on 15.12.1999 (CA 294 of 1999) seeking for appointment of an administrator, a contempt application on 7.1.2000 (CA 6 of 2000) and another on 2.3.2000 (CA 40 of 2000) once again seeking the appointment of an administrator.   In the first application, they have made various allegations against the petitioners and in the second application, they have complained that the petitioners had committed contempt by not giving  inspection of various documents inspite direction from the Bench. In Hindustan Ferro case, the similar was the situation wherein after having taken participation in the proceedings for a number days by filing replies etc for interim applications, the respondents therein filed an application under Section 8 and this Board declined to entertain the same. However, in R.F.B Latex case, since the proceedings were only related to discussions on amicable settlement, this Board held that the respondents therein had not submitted any statement on the substance of the allegations. In the present case, besides participating in the discussions on the amicable settlement, the respondents had, not withstanding their statement that they would be filing an application under Section 8, not only filed a statement on the substance  of the petition in the interim reply, but also filed applications for interim reliefs, signifying very clearly their intent to submit to our jurisdiction. Therefore, we are of the view that the observation of the Court in Anand Gajapathi Raju  that once the other party has submitted his first statement of defence, then, the person who has brought action before the court has a right to have the dispute adjudicated by that court is  directly applicable in this case.  The observation of the Apex Court in Food Corporation of India case was with reference to the 1940 Act, according to which an application under Section 34 of that Act had to be made before filing a written statement or taking any other steps in the proceedings.  Therefore, the court held that taking part in the interlocutory proceedings cannot be considered to be taking part in the proceedings.  But as per Section 8 of the present Act, an application under this Section has to be made before submitting the first statement on the substance of the dispute.  In the present case, the respondents not only dealt with the substance of the petition in their interim reply but also filed other applications for relief. Therefore, the decision of the apex court in Food Corporation of India are not applicable in respect of the new Act.

19. Thus, in view of our finding that there is no binding arbitration agreement  in existence and that even otherwise, the respondents had submitted their first statement on the substance of the disputes before filing the application, we dismiss this application. The respondents are at liberty to file any additional affidavit in relation to the petition by 15.1.2001 and rejoinder, if any, to be filed by 15.2.2001. The petition will be heard on 2nd, 3rd and 4th April, 2001 at 10.30 AM each day.

 

 

(S.Balasubramanian)                                                           (A.K.Banerji)

 

 

New Delhi, dated the  5th day of December 2000.