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Electrosteel Castings Ltd. v/s Binay Prakash and Ors.


    Decided On, 29 February 2008

    At, High Court of Jharkhand



Judgment Text

1. Heard the parties at length on maintainability of this appeal as well as on merits.

2. This appeal has been filed under Section 10F of the Companies Act. 1956 against the order dated 31.10.2006 passed by the Company Law Board. Principal Bench, New Delhi (C.L.B. for short) on the petition filed by the appellant, under Section 8 of the Arbitration and Conciliation Act, 1996 (Arbitration Act for short) being C.A. No. 257 of 2006, in the petition filed by the respondent Nos. 1 to 3 (Binay Prakash Group for short) under Sections 397/398 of the Companies Act, 1956 being C.P No. 66 of 2006; holding that the disputes cannot be referred to Arbitration. (The parties position before the CLB is mentioned in the cause title of this appeal, for the sake of convenience)

3. According to the appellant, the dispute between the parties has to be decided by the Arbitral Tribunal as per the agreement, whereas the contention of the respondent Nos. 1, 2 and 3 (referred as Binay Prakash Group) is that the dispute can be decided only by the CLB.

4. When this appeal was taken upon 18.1.2007. Mr. S.N. Mookherjee, appearing for the respondent-Binay Prakash Group raised a preliminary objection that the Division Bench is competent to hear this appeal. Such objection was referred to the Division Bench. The Division Bench held that this appeal can be heard by single Judge. Thus, this appeal is before me. Though, the objection of maintainability was not raised when the matter was referred to the Division Bench and even before the Division Bench, when this case was remitted to the single Judge for hearing and deciding the matter on its merits, but when such objection was raised at the time of admission of this appeal, it was admitted for hearing on all questions including its maintainability.

5. The Division Bench of Punjab Haryana High Court in the case of Suder shan Chopra etc. v. Vijay Kumar Chopra etc. (2002) 4 CLJ 1 : (2003) 117 Comp Cas 660 held that appeal under Section 10F of the Companies Act was not maintainable against an order passed by the CLB on the petition under Section 8 of the Arbitration Act.

Against the said judgment, the matter was taken to Supreme Court vide SLA (Civil) No. 17271/2002. in which the following order was passed on 20.9.2002.

Upon hearing counsel the Court made the following ORDER

Having heard the learned Counsel for the parties, we are satisfied that present one is not a case fit for exercise of jurisdiction of this Court under Article 136 of the Constitution. Leave to appeal is, therefore, refused. However, the question of law is left open to be decided in an appropriate case.

6. Mr. Chatterjee appearing for the appellant tried to show that the said judgment of Sudarshan Chopra [supra) was not correctly decided, and submitted that the same is not binding on this Court. But in view of the aforesaid orders, it is not necessary for the present to consider the rival submissions of the parties on the question of maintainability of this appeal, and it is accepted that this appeal under Section 10F of the Companies Act is not maintainable, against the impugned order, passed by CLB, on the petition filed by the appellant under Section 8 of the Arbitration Act.

7. Mr. Chatterjee appearing for the appellant submitted that in the event, it is held that this appeal is not maintainable, the same may be treated as a writ petition.

It may be noted here that inspite of suggestion, the appellant, in the case of Sudershan Chopra (supra), did not pray for treating the appeal as writ petition-(paragraph 15.2)

As the parties were heard at length also on the merits, it will not be fit and proper at this stage to ask them to file fresh writ petitions. I am inclined to treat the appeal and the cross objection as writ petitions, under Articles 226/227 of the Constitution of India. (The appellant will now be referred as the writ petitioner).

8. On examination of the impugned order, keeping in view the scope of writ jurisdiction. I find that the same calls for interference. There are apparent and inherent contradictions therein; and the CLB has misdirected itself.

9. Admittedly, the parties entered into an agreement on 27.3.2004. The respondent-Binay Prakash Group including their "nominees" were the first part. The writ petitioner-Electrosteel Castings Ltd. including its "nominees" were the second part. Respondent-DOMCO Pvt. Ltd. was the third part.

10. In paragraph 4 of the impugned order, the CLB has summarized the allegations made by the respondent-Binay Prakash Group regarding the breach of agreement and the reliefs sought have also been summarized i.e. removal of 3rd. 4th and 5th respondents as Directors (respondents 5. 6 and 7 herein); forfeiture of 30,000 shares held by the second respondent (writ petitioner); restraining the respondents 2 to 6 (writ petitioner and the respondents 5 to 8 herein) from writing letter to the Ministry regarding the affairs of the Company; and also for permission to Binay Prakash Group to bring necessary funds for setting up the project.

11. In paragraph 11 of it's order, the CLB observed that before referring the parties to arbitration it was obliged to satisfy itself that the matter covered in the judicial proceedings before the CLB is subject to arbitration and whether there is commonality of parties etc.

12. It held that the agreement contains an arbitration clause. Respondents 3 to 6 (respondent Nos. 5 to 8 herein) are nominees of the writ petitioner herein; and respondent No. 9 herein is nominee of Binay Prakash Group and therefore even if they are not parties to the agreement they are bound by the same as their status is that of agents of the parties to the agreement and they have no independent right or obligation de hors the agreement as their status as directors arises out of the terms of the agreement and that their acts of commissions and omissions are directly attributable to the writ petitioner and the arbitrator can always direct the writ petitioner which is a party to the agreement to withdraw their nomination.

This finding in favour of the writ petitioner is objected in the cross writ petition by the Binay Prakash Group.

This objection cannot be accepted for the following reasons. Apart from the cause title of the agreement, in which the reference to the parties include their "nominees"; Clause 3, 4 and 5 of Article III of the agreement, regarding the "Composition of the Board of Directors and Management" specifically provides for nomination of the Directors by the parties and their removal. Mr. Mookherjee submitted that respondent No. 5 herein is not nominee director. But in paragraph 111 (b) of the petition filed under Section 397/398 itself, it is said that "respondent No. 3 (respondent 5 herein) at all material times, was and still is the Managing Director of the respondent No. 2 (writ petitioner)". Thus, it cannot be accepted that the nominee Directors will not be deemed to be parties to the agreement and they will not be bound by the award. In the circumstances, I And no merit in the cross writ petition.

13. Regarding the other objection of Binay Prakash Group that the arbitrator is not capable of granting relief in terms of Section 402 of the Companies Act. the CLB In paragraph 12 held that arbitrator has the power to grant such a relief as he deems fit taking into consideration the terms of the agreement.

14. But then it held that the main allegation of Binay Prakash Group that the writ petitioner is trying to take away the mining lease; was not covered in the agreement in view of Clause 2 of Article VII of the agreement. This Clause 2 reads as follows:

2. This agreement shall remain in force and effect so long as the Binay Prakash Group holds at least 50% of the equity capital of DOMCO provided that the confidentiality, non-competition and non-solicitation provisions shall continue notwithstanding such termination. Save and except for certain provisions as provided in this agreement, this agreement is terminated automatically if holdings of either parties goes below 50% of the capital.

(emphasis supplied)

15. It is clear from the said clause that the parties stipulated that even if the agreement stands terminated, the confidentiality, non-competition and non-solicitation provisions "shall continue". Further, as per Clauses 1 and 2 of Article IV of the agreement regarding "confidentiality"; the parties agreed to "maintain" strict confidentiality even after expiration of the agreement with regard to the Information and the contents and spirit of the agreement. It is therefore clear that the parties agreed to "maintain confidentiality, non-competition and non-solicitation" not only during the subsistence of the agreement but "continue" the same notwithstanding termination of the agreement. Thus the CLB completely misdirected itself in holding that there is no provision in the agreement relating to non-competition or non-solicitation, during the currency of the agreement and therefore this main allegation does not form part of the arbitration agreement.

16. Then, though the CLB itself found that there is inbuilt contradiction in Clause 5 of Article IX of the agreement but even then on the basis of such Clause 5, it held that arbitration has not been intended by the parties to be the sole remedy or mechanism to resolve the disputes arising out of or in connection with the agreement and therefore the matter cannot be referred to arbitration. Clause 5 reads as follows:

5. Remedies.--No remedy conferred by any of the provisions of this agreement is intended to be exclusive of any other remedy which Is otherwise available at low, in equity, by statute or otherwise, and each and every other remedy given hereunder or now or hereafter existing at law, in equity, by statute or otherwise except as stated to the contrary in this agreement. The election of any of anyone or more of such remedies by any of the parties hereto shall not constitute a waiver by such party of the right to pursue any other available remedy except as aforesaid.
Arbitration Clause 2 is In Article VIII of the agreement which contains specific provision with regard to the "Settlement of Disputes and Governing Law", whereas the said Clause 5 is in Article IX, which contains the "General Terms" of the agreement.

It cannot be accepted that the said Clause 5 of general terms of the agreement will dilute the specific terms regarding arbitration, rather if there is any dispute with regard to the general terms, the same also can be decided by the Arbitral Tribunal. Moreover, as noticed above, the CLB itself found that there are contradictions in the said Clause 5. In any event, the provision of arbitration could not be brushed aside.

17. Moreover, it is pertinent to note that the parties in fact had appointed their arbitrators at one point of time, which also makes it clear that the parties intended to get their disputes settled through Arbitral Tribunal. Thus, the finding of CLB that arbitration has not been intended by the parties to be the sole remedy or mechanism to resolve disputes arising out of or in connection with the agreement; is wholly untenable.

18. The legislative intent underlying Arbitration and Conciliation Act, 1996 is also to be noticed. Sections 7 8 16 and 28 indicate that if the parties have agreed, they should get their disputes resolved through arbitration. The scope of arbitration clause and the Arbitral Tribunal is also very wide. Section 7 gives an extended meaning to arbitration agreement, i.e. for settlement of the disputes which have arisen and which may arise between the parties in respect of a defined legal relation-ship, whether contractual or not. Section 8 mandates the judicial authority to refer the matter to arbitration, if the subject matter of the dispute is subject to the arbitration agreement. [See : [2000]2SCR684 P. Anand Gajapathl Raju and Ors. v. P.V.G. Raju (dead) and Ors. : AIR2002SC404 ; Kalpana Kothari (Smt.) v. Sudha Yadav and Ors. with analogous cases; and : AIR2003SC2881 Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums. Section 16 provides that the arbitral tribunal is competent to rule even

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on it's own jurisdiction, including on the objection with regard to the existence or validity of the arbitration agreement, and for this purpose, the arbitration clause, has to be treated as an agreement, independent of the other terms of the contract, and even if the contract is held null and void it will not entail ipso jure the invalidity of arbitration clause. Section 28 provides that the arbitral tribunal is required to decide the dispute in accordance with the substantive law; which includes the Company Law, the Contract Act etc. 19. For the reasons aforesaid, it is a fit case calling for interference with the impugned order of CLB, under writ Jurisdiction. As noticed above, from the impugned order itself, it is apparent that there are inherent contradictions and the CLB has also misdirected itself and fell in error in holding that the matter cannot be referred to arbitration. In my opinion, the disputes are covered under arbitration clause and the Arbitral Tribunal is competent to pass award on the disputes. 20. In the circumstances and the legal position, noticed above, the impugned order dated 31.10.2006, passed by the Company Law Board, Principal Bench, New Delhi on C.A. No. 257 of 2006 cannot be sustained, and it is accordingly set aside. With these observations and findings, these cases are disposed of. However, no costs.