CA No. 646 of 2008 in CP No. 53(ND) of 2008. Case: Dr. S.S. Agarwal and Ors. Vs Rajasthan Hospitals Ltd. and Ors.. Company Law Board
| Case Number | CA No. 646 of 2008 in CP No. 53(ND) of 2008 |
| Judges | Vimla Yadav, Member |
| Issue | Company Law |
| Citation | [2011] 100 CLA 244 |
| Judgement Date | August 05, 2010 |
| Court | Company Law Board |
Order:
Vimla Yadav, Member
1. In this order I am considering Company Application No. 646 of 2008 filed by Dr. G L Purohit, Respondent No. 2 in Company Petition No. 53(ND) of 2008 under Section 8 of the Arbitration and Conciliation Act, 1996 ('the A&C Act') read with Regulation 44 of the Company Law Board Regulations, 1991 ('CLB Regulations'), for referring the parties to arbitration. The Company Petition No. 53(ND) of 2008 has been filed by Dr. S.S. Agarwal and Ors. (the Petitioners) against Rajasthan Hospitals Ltd. and Ors. (the Respondents) under Section 397, 398, 399 and 402 of the Companies Act, 1956 ('the Act') alleging certain acts of oppression and mismanagement. Rajasthan Hospitals Ltd. was incorporated on 16th March, 1989 having its registered office at Opp. Jaipuria Hospital, Jawaharlal Nehru Marg, Jaipur, Rajasthan. The authorised share capital of the R-1-company is Rs. 5,00,00,000, subscribed and paid-up share capital as Rs. 3,30,50,700. The main objects of the company are to undertake, promote, assist or engage in all kinds of research and development work required to promote, assist or engage in setting up hospitals and facilities for manufacturing medical equipment. To carry on the business of design, construction and running of all kinds of hospitals, dispensaries, clinics, laboratories and health clubs, etc.
2. Applicant's/R-2's case is that the R-2 and the P-11 signed memorandum of understanding ('MoU') on 9th March, 2003, in respect of shareholding and management of the R-1-company. It was contended that the P-1 has signed the said MoU, therefore, is a party to the said MoU. The P-2 to 9 along with the P-1 constitute the Petitioner group as admitted by the Petitioners in the company petition. The P-1 to P-9 had purchased 8,26,268 equity shares representing 25 per cent of the total equity share capital of the R-1-company simultaneously at the rate of Rs. 4.30 per share from the R-2 pursuant to the said MoU. The P-1 had further acquired 8,59,318 equity shares separately by representing 26 per cent of then total equity share capital of the R-1-company at the rate of Rs. 4.30 per share from the R-2 due to default in repayment of loan as per loan agreement dated 9th March, 2003. The P-1 to P-9 claim to have unison of alleged cause of action against the Respondents. No independent alleged cause of action has been averred in the petition. All the allegations have arisen out of the said MoU and few frivolous allegations have been added outside the scope of petition under Section 397 and 398 of the Act to escape the arbitration proceeding. Therefore, bifurcation of cause of action does not arise in the above petition. P-1 to P-9 have relied upon the said MoU throughout the company petition and the same fact remains uncontroverted by the Petitioners. Company Application No. 646 of 2008 was filed by the R-2 only as the R-2 was party to the said MoU. It was contended that R-2 signed the said MoU, therefore, is a party to the said MoU. The Petitioners have referred to the Respondents as the Respondent group throughout in the petition and the same facts were uncontroverted during the arguments. The said MoU clearly shows the R-2 to include his friends and relatives. It was argued that the said MoU was not signed by the P-1 in personal capacity. The said MoU clearly shows the R-2 to include his friend and relatives and the P-1 to include his friend and relatives. Moreover, the Petitioners have referred to the Petitioner group and the Respondent group in the above petition. The said MoU has valid arbitration clause which has used the word 'shall' for referring all the disputes to arbitration. Any clarification in respect of the arbitration clause can be decided by the arbitrator only as per Section 16 of the A&C Act. The Petitioners have made main prayers based on the said MoU and they have deliberately inserted incidental prayers which cannot be allowed unless the main prayers are allowed at all. The R-1-company was incorporated on 16th March, 1989, and has not started any business/earned any income so far. In case the allegations arising out of the said MoU are brushed aside, the above petition would not be maintainable. To support his contentions R-2 relied on the case laws in S B P & Co. v. Patel Engineering Ltd. [2005] 15 CLA-BL Supp 96 (SC)/ [2006] 2 Comp LJ 7 (SC); Agri Gold XIMS Ltd. v. Sri Lakshmi Knits & Wovens [2007] 20 CLA-BL Supp 1 (SC)/ [2007] 3 SCC 686; Rashtriya Ispat Nigam Ltd. v. Verma Transport Co. [2006] 18 CLA-BL Supp 140 (SC); Hindustan Petroleum Corporation Ltd. v. Pinkcity Midway Petroleums [2003] 9 CLA-BL Supp 88 (SC) / [2003] 6 SCC 503; Konkan Railway Corporation Ltd. v. Rani Construction (P.) Ltd. [2002] 1 CLA-BL Supp 66 (SC)/ [2002] 2 SCC 388; P Anand Gajapathi Raju v. PVG Raju [2000] CLA-BL Supp 275 (SC)/ [2000] 4 SCC 539 and Lubricants (P.) Ltd. v. Ravi Khanna [2003] A LR Supp 510 (Del.). To support his contentions R-2 relied upon the case laws in Severn Trent Water Purification Inc. v. Chloro Controls India (P.) Ltd. [2010] 2 A LR 116 (Bom.) (DB); RPG Communication Holdings (P.) Ltd. v. J Bala Murgan [2010] 4 Comp LJ 337 (Del.)/[2010] 1 A LR 646 (Del.); Spray Engineering Devices Ltd. v. Shree Saibaba Sugars Ltd. [2008] 86 CLA 173 (CLB)/[2008] 4 Comp LJ 143; Kotak Mahindra Bank Ltd. v. Sundran Brake Linings Ltd. [2008] Supp 1 Arb LR 132 (Mad.); Virender Yadav v. Aerosvit Airlines [2008] 24 CLA-BL Supp (Snr.) 16 (Del.)/[2008] 3 A LR 445 (Del.) and Shukaran Devi v. Om Prakash Jain [2006] 133 DLT 297.
3. It was contended that R-1-company has shown willingness, vide letter dated 30 April, 2009, to join as co-claimant to arbitrate the dispute against the Petitioners. The Petitioners have averred in the said MoU has been adopted by the R-1-company while the fact is that the said MoU that it has not been adopted by the R-1-company till date. The Petitioners have alleged that the R-1-company has adopted the said MoU; on the other hand, the Petitioners have denied the same in the reply to the present application. The Petitioners cannot approbate and reprobate the stand taken by them in the petition. To support his contentions R-2 has relied upon the case law in Jai Narain Parasrampuria v. Pushpa Devi Saraf [2006] 75 CLA 118 (SC)/[2006] 133 Comp Cas 794 (SC) dated 24th August, 2006. The other Respondents are also willing to join and to arbitrate the dispute with the Petitioners. To support his contentions R-2 relied upon the case laws in Vimal Chand Ghevardwnd Jain v. Ramakant Eknath Jajoo [2009] 5 Scale 59; Virender Yadav (supra); RPG Communication Holdings (P.) Ltd. (supra); Kotak Mahindra Bank Ltd. (supra) and Severn Trent Water Purification Inc. (supra).
4. It was argued that the contentions of the Petitioners about the fraud and misappropriation of funds by the R-2 hold no water as the R-1-company has not earned any income since incorporation and the R-2 has provided funds of Rs. 1.50 crore upto 31st March, 2010, while the P-1 has provided meagre amount of only Rs. 2.31 lakh in the year 2003. It is unbelievable that the Petitioners have alleged that the R-2 would do fraud and misappropriate the funds contributed by him only.
5. It was contended that certain allegations relate to the period before the Petitioners became the shareholders of the R-1-company and such allegations are not continuing. The said MoU was signed in the fourteenth year from the incorporation of the R-1-company.
6. It was argued that the allegations about conviction of the R-2 in personal capacity by the court in UAE is not relating to the affairs of the R-1-company. Therefore, such allegations are out of the purview of the petition under Section 397 and 398 of the Act.
7. It was contended that the Petitioners have not come with clean hands. They have suppressed the material facts particularly about the arbitration clause in the said MoU. The Petitioners have not made any effort to invoke the arbitration clause of the said MoU in spite of the knowledge of the same. On the other hand, they preferred to file the company petition. They have not referred to arbitration clause of the said MoU anywhere in the petition not even in para 4 relating to jurisdiction of the above petition.
8. It was pointed out that it is well settled law that the private agreement between shareholders cannot be considered by the Company Law Board ('CLB') unless the same has been adopted by the company. Alternatively, the petition can be considered without, de hors MoU. The arbitration and conciliation first Ordinance was passed on 16th January, 1996, followed by second Ordinance on 23 March, 1996, and, again, followed by third Ordinance on 21st June, 1996. Finally, Arbitration and Conciliation Act, 1996, came into force on 16th August, 1996, which shows the great importance to bring the new legislation into force. The provisions of Section 8 of the A&C Act, are peremptory and the judicial authority is under obligation to refer the parties to the arbitration. Therefore, in cases where there is an arbitration clause in the agreement, it is obligatory for the court to refer the parties to arbitration in terms of their arbitration agreement and nothing remains to be decided in the original action after such an application is made except to refer the disputes to arbitration. Section 8 read with Section 5, 7 and 16 of the A&C Act makes absolutely clear that the CLB can examine only the validity of the present application but cannot examine the powers of the arbitrator. The averments of the present application and arguments therein by the R-2 are uncontroverted by the Petitioners.
9. It was pointed out that the Petitioners have filed the Company Petition No. 53(ND) of 2008 afresh after final order dated 11th July, 2008, was passed by the CLB in earlier Company Petition No. 37 of 2007 {Dr. S.S. Agarwal v. Rajasthan Hospital Ltd. [2009] 90 CLA 253 (CLB)}, it is not lawful to refer the contents of earlier company petition which...
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