C.A. No. 139 of 2007 in C.P. No. 55 of 2007. Case: AMRL International Tech City Ltd. and Anr. Vs Infac India Group LLC. Company Law Board
| Case Number | C.A. No. 139 of 2007 in C.P. No. 55 of 2007 |
| Counsel | For Appellant: R. Venkatavaradhan and Arya Raj and For Respondents: T.K. Seshadri with S.R. Raghunathan |
| Judges | K.K. Balu, Vice-Chairman |
| Issue | Company Law Board Regulations, 1991 - Regulation 44; Companies Act, 1956 - Sections 397 and 398 |
| Citation | 147 CompCas 291 |
| Judgement Date | January 30, 2008 |
| Court | Company Law Board |
Order:
K.K. Balu, Vice-Chairman, (At Chennai)
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This is an application filed under regulation 44 of the Company Law Board Regulations, 1991 ("the Regulations") read with Section 8 of the Arbitration and Conciliation Act, 1996 ("the Act, 1996) seeking directions against the respondent/petitioner to refer the action brought under Sections 397 and 398 of the Companies Act, 1956 ("the Act") before the Company Law Board, being the subject matter of the agreements entered into between the parties to arbitration, in support of which Shri R. Venkatavaradan, learned Counsel, submitted:
The first applicant-Company is one of the parties to (a) Memorandum of Understanding (MOU) entered on 09.10.2006 by the respondent/petitioner, the first applicant-Company and the Investor group; (b) Shareholders Agreement (SHA) dated 04.11.2006 and (c) Share Subscription Agreement (SSA) dated 04.11.2006 entered into by the respondent/petitioner, the applicant-Company, M/s. AMR Constructions, the eighth respondent, the respondent No. 13 in the company petition and TIDCO. The Investor group in all the three agreements is represented by the second applicant and accordingly, the second applicant has initiated the present proceedings on behalf of all the persons constituting the Investor group. These agreements which are suppressed by the respondent/petitioner set out various terms and conditions for running the business and management of the first applicant-Company, including the shareholding pattern in the Company. The MOU deals with the modalities for future arrangements between the parties. The SHA provides for the management of the affairs of the Company and certain rights and obligations between the parties, as specified therein. The SSA facilitates the acquisition of 68% of the paid up equity share capital of the Company by the investors.
All the allegations made in the company petition are matters fully covered by the MOU, SHA and SSA. Clause 11.2 of the MOU, Clause 15 of the SHA and Clause 12 of the SSA provide for arbitration, as the means of resolving disputes arising out of the MOU/SHA/SSA between the parties and, therefore, the disputes raised in the company petition can be resolved only by a properly constituted arbitral tribunal under these agreements. The respondent/petitioner is bound by the terms of the contract and cannot seek to agitate the disputed issues before the CLB. By virtue of Section 8 of the Act, 1996 the petitioner may be directed to go before the arbitral tribunal for resolving the subject disputes, without however, being adjudicated in the present proceedings. If the disputes raised in the main petition can be decided without reference to the agreements in question, the CLB is empowered to exercise its jurisdiction under Sections 397 and 398, whereas in the present ease, the grievances have arisen out of the agreements and, therefore, the disputes are bound to be referred to arbitration. If the grievances raised in the affairs of the Company are on account of the agreements, the disputes cannot be adjudicated before the CLB, without any reference to the terms of the agreements and if the agreements are in force, the parties are to refer the disputes arising out of the agreements for arbitration, as held in E. Logistics P. Ltd. v. Financial Technologies (India) Ltd. (2007) 139 CC 311. It is held in Airtouch International (Mauritius) Ltd. v. RPG Cellular Investments and Holdings P. Ltd. (2004) Vol. 121 CC 647 that when the entire foundation of the petition is on the SHA and the matters agitated in the company petition are arising out of and in connection with the SHA, the parties must be referred to arbitration, in terms of the SHA and cannot invoke the jurisdiction of the CLB under Sections 397 and 398.
The substantial rights of the parties under the SHA and other agreements can be enforced before the arbitral tribunal. It is only by virtue of the agreements, the parties have acquired interest in the Company. All the rights and obligations flowing from the agreements are not to be raised in a Section 397/398 petition. The allegations of the petitioner with reference to tiling of statutory forms, convening of the extra ordinary general meeting, alteration of the articles of association and memorandum of association increase in authorised capital, change in the name of the Company, non-convening of board meeting, non-sending of notices of board meetings, share allotment, effecting changes in the composition of the board of directors of the Company by removing and appointing additional directors, utilisation of the Company's property for personal benefits, appointment of general manager and change of the registered office are squarely covered by the MOU/SHA/SSA, as the case may be. The respondent/petitioner intends to cancel the agreements and terminate the directorship. The grievances of the respondent/petitioner are not arising out of any statutory duties, but consequent upon the contractual obligations between the parties to the agreements. The alleged acts of mis-management are either obligations or rights of either of the applicants or the respondent/petitioner, as contemplated in the relevant Clauses of the agreements. These issues which are to be raised before the arbitral tribunal, can never be raised in a Section 397/398 proceeding. The provisions of the agreements are binding upon the parties and the breach of any of the terms of the agreements, will have to be resolved by referring it to arbitration in terms of the arbitration Clause(s). No remedies can be claimed in the shape of the purported acts of mismanagement and oppression.
All the parties before the CLB need not necessarily be parties to the agreements, but...
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