PRINCIPAL BENCH
Dated 4th Feb. 2002
Present: 1. Justice A.K. Banerji, Chairman
2. Shri S. Balasubramanian,
Vice Chairman
AND
In the matter of Shri Pinaki
Das Gupta
M/S Maadhyam Advertising
Private Limited
PETITIONER:
Shri Pinaki Das Gupta
RESPONDENTS:
1. M/S Maadhyam
Advertising Private Limited
2. M/S Publicis
(India) Communications Private Ltd.
3. Shri Michael
Menezes
4. Shri R. Ravi
Shankar
Present on behalf of
parties:
1. Shri D. Bhattacharyya,
Advocate
.. for petitioner
2. Shri Rana Mukherjee,
Advocate
.. for petitioner
3. Shri S.P. Bhatia,
Advocate
.. for petitioner
4. Ms. Anuradha Dutt,
Advocate
.. for applicant resp.
5. Shri Jeevesh Nagrath,
Advocate
.. –do-
6. Ms. Ekta Kapil, Advocate
.. –do-
(Date of hearing: 31.1.2002
)
S. BALASUBRAMANIAN:
1. In this order,
we are considering the application filed by the respondents in terms of Section 8 of
Arbitration and Conciliation Act, 1996 ( Arbitration Act ).
The facts of the case are that the petitioner has filed a petition under Sections
397/398 of the Act alleging acts of oppression and mismanagement in the affairs of M/S
Maadhyam Advertising Private Limited ( the company).
According to the petitioner, he is one of the promoters of the company holding 2625
shares of Rs 100 each out of the total paid up shares of 10000 equity shares. In addition to the petitioner, there were six
other shareholders. All the shareholders entered into an agreement for sale of shares to
one M/S Publicis (India) Communications Private Limited by which all the shares held by
these shareholders constituting 100% shares in the company would be sold by them and
purchased by M/S Publicis. As per this
agreement, the purchase consideration is to be paid in four installments and that 3 shareholders including the petitioner were to
continue to be employed by the company up to
30th September, 2002 for which they were to enter into employment/consultant
contract with the company on or before the date of acquisition. This term of the agreement
is relevant since payment of 2nd to 4th installments depended upon
generation of revenue and earn-out. In terms
of this agreement, the petitioner had handed over all the share certificates in respect of
his shares together with share transfer forms. While
the first installment has been paid, the
company has committed breach of the term of the agreement
relating to the employment/consultant contract.
Since the consideration for the shares would depend upon the revenues of the
company in respect of payment of 2nd
to 4th installments, the association of the petitioner with the company was
very essential to ensure that the company earns
better revenue. Further, even though the
petitioner was a director, without any letter of resignation from the petitioner, the
company has passed a resolution accepting his resignation with effect from 29.12.2000. Thus, the 1st and 2nd
respondent have completely excluded the
petitioner from the management of the company even though he was one of the original
promoter of the company. Further, the
respondents 2 and 3 have also been denying the payment of further installments after
having paid the 1st installment of Rs.1.13 crores. Accordingly, he has prayed for various reliefs.
2. While this
petition was filed on 18.5.20001, the petitioner filed an amendment application on
6.11.2001 seeking to amend the original petition. In
this amendment application, he has submitted that his resignation letter was subject to
acceptance and confirmation by the Board in a Board Meeting to be held on 15th
January, 2001. However, no such meeting was
held on that date and as such his resignation letter could not have been accepted on that
date. He has also averred in the amendment
application that without the knowledge and consent of the petitioner, the 3rd
respondent, who was one of the promoters of the company,
had entered into an MOU on 23.2.2000 claiming himself to represent the shareholders
and the company with M/S Publicis for sale of the entire 100% shares of the company. This MOU was never disclosed to the petitioner. As such, in the amendment application, he has
sought for an additional relief to declare the MOU dated 23.2.2000 as null and void.
3. In the
application, the respondents have sought for referring the matter to Arbitration in terms
of Section 8 of the Arbitration Act on the ground that the entire petition is based on the
agreement dated 15th January, 2001 in which there is an arbitration clause
providing for reference to a sole Arbitrator all the disputes arising out of the said
agreement.
4. Ms. Anuradha
Dutt, Counsel appearing for the respondents submitted: A perusal of the allegations in the
petition would reveal that all the allegations made in the petition arise out of the
agreement dated 15.1.2001. It is as per this
agreement that the petitioner was to be employed and the allegation is that he has not
been so employed. In terms of this agreement,
the petitioner has already received the first installment towards consideration for his
shares and in terms of the agreement, all his shares have already been transferred and as
such he is not even a shareholder to move this petition.
Even his resignation about which he has made complaints now arose out of the terms
of the agreement. Further, a perusal of the
reliefs sought would indicate that what he is seeking in the petition is specific
performance of the agreement. Even in the amendment application, which is yet to be
admitted, his prayer relates to declaration of the MOU dated 23.2.2000 as null and void on
the ground that he had no knowledge of the same earlier.
This statement is wrong in as much as this MOU has been specifically referred in the
Agreement dated 15.1.2001 in Clause 28. That being the case, even this could be subject to
arbitration. Therefore, without recourse to
the terms of the agreement, none of the allegations could be looked into and that being
the case, since arbitration has been provided in the agreement, the CLB should refer the
dispute to Arbitration in terms of Section 8 of the Arbitration Act.
5. She further
submitted: The petitioner has already filed an application before the Delhi High Court in
terms of Section 9 of the Arbitration Act seeking certain interim reliefs relating to the restoration of the Board as it existed before
15.1.2001 and cancellation of the transfer of shares. This application is pending before
the High Court. He has also invoked the Arbitration clause by issue of a notice dated
19.5.2001 to the 2nd and 3rd respondents in which according to him
the disputes and differences had arisen in respect of specific performance of the
agreement dated 15.1.2001, signing of employment contract, payment of installments and any
other issue relevant to sale of shares as per the agreement. This notice itself
would indicate that the disputes that have been raised in the petition have all been
covered by the said notice. Therefore, this
is a fit case wherein the provisions of Section 8 of the Arbitration Act are squarely
applicable. On the proposition that if the disputes in a petition under Sections 397/398
of the Act relate to contractual agreements having arbitration clause, the dispute should
be referred to arbitration in terms of Section 8 of the Arbitration Act she referred to P
Anand Gagapati Raju Vs. P.V.G. Raju ( 2000 4 SCC 539
), Naveen Kedia Vs. Chennai Power Corporation Ltd.
( 1995 CC 640 CLB)
and Escorts Finance Limited Vs. G.R. Solvent & Allied Industries Ltd. ( 1996 CC 323 CLB).
6. Shri
Bhattacharyya, Advocate appearing for the petitioner submitted: Even though references
have been made in the petition regarding the
agreement dated 15.1.2001, the grievances of the petitioner relate to oppression. Even though the 3rd respondent was a
co-promoter of the company along with the petitioner, yet, the former has joined hands
with M/S Publicis by which the petitioner has been completely excluded from the management
of the company. Even though the respondents
have heavily relied on the arbitration clause in the agreement, this agreement is not
binding in as much as, in terms of Clause 21 of the Agreement, the company should have
entered into employment/consultant contract with the petitioner on or before 15.1.2001.
However, as is evident from Annexure A-7,
even the draft copy of the agreement was given to the petitioner only on 16th
Feb., 2001.
The transfer of shares, resignation of the petitioner were allegedly approved in a
Board meeting on 15.1.2001, that is before complying with Clause 21 of the agreement. If
the meting had really taken place, then these decisions would have no validity without
compliance with Clause 21.
7. The learned
counsel further submitted: The very fact that the MOU dated 23.2.2000 was entered into by
the 3rd respondent without the knowledge and consent of the petitioner, would
show that clandestine attempts to acquire 100% shares by M/S Publicis was going on for a
long time in connivance with the 3rd respondent,
which itself is oppressive to the petitioner. The powers under Section 402 of the
Act are so wide that the CLB can mould proper relief with a view to put an end to the disputes. The company has
filed a false criminal case against the petitioner which has been dismissed by the court. In other words, inspite of the fact that the petitioner is a co-promoter director, he
is being hounded. In Needle Industries case,
which has been followed by the CLB in many other cases, it has been held that the court is
not powerless to render justice even if allegations of oppression are not established. However, in the present case, the sequence of
events and also the manner in which the petitioner has been treated would establish that
the petitioner is being oppressed. Therefore,
the arbitration clause in the agreement cannot bar the petitioner from prosecuting the
present petition before the CLB. In Manavendra
Chitnis V Leela Chitnis Studios Pvt Ltd (58 CC 113)
Bombay High Court has held that subject matter of a petition under Sections
397/98 cannot be the subject matter of an arbitration, for an arbitrator can have no
powers such as are conferred on the court by Section 402. Accordingly, he prayed for
dismissal of this application.
8. We have
considered the pleadings and arguments of the counsel. The admitted position is that there
is an agreement for sale and purchase of shares
dated 15.1.2001 and it contains an arbitration clause. The petitioner and the 1st respondent
are also parties to the agreement. Clause 27 (iii) of the Agreement dated 15.1.2001
provides “Any and all disputes and/or
claims arising under this agreement and/or out of or in connection with the execution,
interpretation, performance, and/or non performance of this agreement shall be referred to
arbitration in accordance with the provisions of the ( Indian) Arbitration and
Conciliation Act, 1996 or any enactment or modification thereof then enforce. The reference shall be to a sole arbitrator
jointly appointed by the parties. If the
parties are unable to agree to a sole arbitrator, then the reference shall be to three
arbitrators appointed as follows: One arbitrator appointed by the vendors –one
arbitrator appointed by the purchaser and the third arbitrator to be appointed by the two
aforesaid two arbitrators. The
arbitration shall be held in Mumbai, India”. Section
8 of the Arbitration Act reads “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 the dispute,
refer the parties to arbitration”. In the present case, there is an arbitration
agreement, and the first respondent, which is a signatory of the agreement has filed this application in terms of Section 8 of the
Arbitration Act before filing first statement on the substance of the dispute. Therefore, the only examination that is required
to be made is whether the matter before us is
the subject of the arbitration agreement. Before
we consider this aspect, we may advert to the
contention of the learned counsel for the petitioner, that in view of the wide powers
under Section 402, which powers are not available to an arbitrator, Section 8 is not
applicable to a proceeding under Sections 397/98. This
Board has examined similar contention in a number of cases, including in the cases cited
by Ms Dutt. In Bhadresh Kantilal Shah V AIA Magotteaux Limited (2000 36 CLA 76),
this Board observed “Another point
raised by Shri Chagla has been that, an arbitrator
is incapable of granting the reliefs as provided for in Section 402 of the Act. In regard to this argument, no doubt Company law
Board has vast powers under Section 402 of the Act, yet, granting of relief depends on
facts of a particular case and if for
granting the relief, determination of bona fide disputes is required and the same is
covered by an arbitration agreement, then, it is for the arbitrator to decide these issues
and not the Company law Board. In this connection we may also refer to the Delhi High
Court judgement in Gurnir Singh Gill case(supra).
In this case, the court itself, as pointed out by Shri Chagla, in exercise of the powers
under Section 402, referred the parties to
arbitration. It did so because, in facts of that case, it felt that the reliefs justified
in that case could be granted by the arbitrator not withstanding the fact that the powers
under Section 402 are very wide. This case settles the claim of Shri Chagla that since an
arbitrator cannot grant the relief provided for under Section 402, the matter cannot be
referred to an arbitration. Granting of relief in a proceedings under Sections 397/98 is
discretionary depending on the facts of a case. If the CLB comes to a conclusion that
appropriate relief justified in a particular case can be granted by an arbitrator, then,
there is no reason why the matter cannot be referred to
arbitration. In other
words, even in a 397/398 petition, if the party applying
for referring the matter to arbitration is in a position to establish that there
are bona fide disputes arising out of and in connection with an arbitration agreement, and
that the arbitrator could settle the disputes
by appropriate reliefs,, then, the Company Law Board will have to refer the parties to
arbitration in terms of Section 8 or Section 45, as the case may be, of the Arbitration
Act. Perhaps, that is the reason why Section 34 of the Arbitration Act of 1940 provided
for staying of the proceedings but presently in terms of Sections 8 and Section 45 of the
Arbitration Act, such a stay of proceedings is not possible other than referring the
parties to arbitration”. Therefore,
if it is established that the matter before the CLB is covered by an arbitration
agreement, then, the same has to be referred to arbitration. This Board has done so in
Chennai Power Corporation Ltd. and Escorts Finance Limited cases as cited by the
learned counsel for the respondents. In some petitions under Sections 397/98, this Board
found that of the issues raised therein, while some were covered under arbitration
agreements others were not. In such cases,
this Board referred the parties to arbitration on those issues retaining others for its
examination. (Khandwala Securities Ltd V Kowa Spinning Mill Ltd -1999 34 CLA 273)
and 20th
Century Finance Corporation Limited Vs. RFB Latex Limited (1997 CC 636). In other words, matters
covered in a proceeding under Sections 397/98 are not outside the purview of the
provisions of Section 8 of the Arbitration Act, if the requirements of that Section are
satisfied.
9. Coming to the
matters covered in the petition, we are in full agreement with the learned counsel for the
respondents that de-hors the agreement dated 15.1.2001, none of the allegations in the
petition could be examined. A perusal of the
petition indicates that the foundation of the petition itself is the said agreement and
the reliefs sought as indicated below all arise out of the said agreement. The reliefs sought in the petition are:
(a) Pass
appropriate orders and directions to the Respondents nos.1 and 2 companies to specifically
and faithfully perform and implement all the terms and conditions agreed in the Agreement
for Sale of Shares dated 15.1.2001 entered into amongst the Respondents and the
Petitioner, in favour of the petitioner.
(b) Pass
appropriate orders directing the Defendants, their agents and other authorized persons not
to indulge in violation and or breach of the any of the terms and conditions of the
Agreement for Sale of Shares dated 15.1.2001 and not to do any acts to the prejudice of
the Petitioner in ousting and excluding him from the affairs of the company.
(c) Pass
appropriate orders directing the Respondents no. 1 and 2 companies not to give effect to
the transfer and registration of the shares of Respondent no.1 company owned by the
Petitioner either in the name of the Respondent no.2 or anybody else till the specific
performance of all the terms and conditions of the said Agreement for Sale of Shares dated
15.1.2001 entered into amongst the Petitioner and the Respondents and in the meanwhile to
return to the Petitioner the shares owned by the Petitioner along with the share transfer
forms duly signed by the Petitioner and in the possession of the Respondent.
(d) Pass
appropriate orders restraining the Respondent no.1 company from making any change in the
composition of the Board of Directors of the company as existing as on and prior to
October, 2000 and ousting and excluding the Petitioner from being a Director of the Board
of Directors of Respondent no.1 company till the specific performance of all the terms and
conditions of the above said Agreement dated 15.1.2001 and the duly signed resignation
voluntarily given by the Petitioner.
(e) Pass
appropriate orders declaring null and void any resolution passed by the Board of Directors
of Respondent no.1 company removing or indicating the resignation of the Petitioner from
the post of Director of Respondent no.1 company.
(f) The Respondent
no.1 company be also restrained from filing Form no.32 conveying the resignation of the
Petitioner from the post of Director of Respondent no.1 company and any other
forms/reports regarding any changes in the composition of the Board of Directors and/ or
functioning of the company before the Registrar of Companies without complete and specific
performance of the above said Agreement dated 15.1.2001 and directed to withdraw the Form
no.32 filed by them on 24.04.2001 before the Registrar of Companies in this regard.
(g) Pass
appropriate orders directing the Respondent no.1 company as also Defendant no.2 to
faithfully and specifically perform all the terms and conditions of the Agreement for Sale
of Shares dated 15.1.2001 including the signing and execution of the employment/consultant
contract between the Petitioner and the Defendant no.1 company and restraining the
Respondents, their agents, etc. from creating
any hindrance, obstruction, interference, pressure tactics, dishonesty, fraud and/or
forgery etc. against the Petitioner and in the control and powers of the Petitioner over
the functioning and management of the company to be able to make his optimum contribution
to the growth of business of Respondent no.1 company and ensure maximum generation of
revenue and earn-out in order to be able to recover the maximum amount towards instalments
of the shares as per the terms of the Agreement dated 15.1.2001.
10. In the amendment application, the petitioner has
sought for substitution of the prayer (a) above as follows:
(a) Pass
appropriate orders declaring as null and void and terminating or setting aside the
Memorandum of Understanding entered into on 23rd February, 2001 between
Publicis Zen Communications Private Ltd. And Mr. Michael Menezes, acting as such and on
behalf of the other shareholders and as representative of Maadhyam Pvt.Ltd. on the ground
that Mr. Michael Menezes was acting as such without proper authority from the Petitioner
herein, Shri Pinaki Dasgupta and without proper authority and or resolution approved by
the Board of Directors of the company, M/S Maadhyam Advertising Private Limited.
11. A perusal of the reliefs sought for as indicated in (b) to
(g) would show that all the reliefs sought
arise out of the agreement dated 15.1.2001.As a matter of fact the notice dated 19.5.2001
issued by the petitioner himself invoking the Arbitration clause covers practically all
the issues raised in the petition. That
notice reads
“ I do hereby give you the following notice
–
(1)That the
following disputes /differences have arisen between us with regard to the agreement dated
15.1.2001:
(a) specific
performance of the agreement dated 15.1.2001
(b) signing of the employment contract as per clause 21
of the Agreement dated 15.1.2001 and vide letter dated 16.2.2001 from Publicis (India)
Communication Pvt. Ltd.
(c) Payment of instalments as per clause 3 of the
Agreement dated 15.1.2001
(d) any other issue relevant to sale of shares as per
the agreement dated 15.1.2001
(2) That as
per the terms of Agreement dated 15.1.2001 and Clause 27 (iii) the disputes/difference are
referable to the sole arbitrator to be appointed by us i.e. the parties in the agreement
dated 15.1.2001
(3) Please
indicate your choice of the sole arbitrator, if any at the earliest”.
12. The points/ areas of disputes as raised in this notice are
practically similar to those raised in the petition before us. Since the petitioner
himself has raised these issues in the notice, he is aware that they are all covered by
the arbitration agreement. As a matter of fact, this notice has been issued on 19.5.2001,
that is, just a day after filing of this petition on 18.5.2001.
Even the reliefs that have been sought cannot be granted without examining the
terms of the contract as all the reliefs sought are based on the terms of the agreement.
Further, the petitioner has not sought for any final relief in the petition. All the
reliefs are in the nature of interim reliefs pending the implementation of/performance of
the terms of the contract which itself is a matter for the arbitrator to decide. In other words, the main grievance of the petitioner in this petition is non performance of
the terms of the agreement and we find that the arbitration Clause in the agreement
specifically provides for arbitration in cases of non performance of the terms of the
agreement. The learned counsel for the
petitioner argued that in view of breach of the terms of clause 21 of the agreement, the
agreement has no binding effect. This argument is contrary to the pleadings and is an
after thought as in the petition, he has sought for implementation of the agreement. Even
otherwise, this issue also as to whether the agreement is binding is covered by the
arbitration agreement. Therefore, we are
fully convinced that all the issues raised in the petition are covered by the arbitration
agreement and in terms of Section 8 of the Arbitration Act, we have to necessarily refer
the matter to Arbitration and accordingly we do so. The learned counsel referred to Needle
Industries case to advance the argument that even if oppression is not established, the
court is not powerless to do justice. This proposition would arise only when the petition
is heard on merits. Now that we have held that the mater covered in the petition is the
subject matter of the arbitration agreement, there is no scope to examine whether the
petitioner has been oppressed or not.
13. This application CA 21 of 2002 is allowed and referring
the parties to arbitration accordingly, we close this petition.
(S. Balasubramanian)
(A.K.Banerji)