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Judgment
Per: ANIL KUMAR B, MEMBER (TECHNICAL)
Under Consideration are two separate Application filed by the Applicant / Respondent in the main Company Petition, under Section 45 of The Arbitration and Conciliation Act, 1996 seeking relief as follows;
In the aforesaid circumstances, it is most respectfully submitted that this Hon'ble Tribunal be pleased to allow the present Application and refer the contesting parties to the Company Petition, who are all parties to the Investment Agreement dated August 28, 2015 i.e. the Petitioner and the Respondent No.(s) 1 and 2 to arbitration in accordance with Article 26.2 of the said Agreement;
PRELUDE
The Company Petition in CP/301/2020 was originally filed by the Petitioner under Section 241 – 242 of the Companies Act, 2013 seeking relief as follows;
i.Declare that the Board Meeting held on 20.07.2020 and 06.08.2020 are illegal, invalid and non-est in law;
ii.Declare that all the resolutions purported to be passed at Board Meeting held on 06.08.2020 are illegal, invalid and non-est in law;
iii.Declare that the letter of offer purported to be issued by the 1st Respondent Company pursuant to the Resolution passed on 06.08.2020 received by the 1st Petitioners on 06.08.2020 are illegal, invalid and contrary to the provisions of the Companies Act, 2013 and to the Articles of Association of the 1st Respondent Company;
iv.Declare that the purported rights issue undertaken by the Respondents 1 to 5 pursuant to the Board Meetings dated 06.08.2020 is illegal, invalid and non-est in law;
v.Permanent injunction restraining Respondents 1 to 5 from allotting any shares pursuant to the rights issue proposed by the Respondents pursuant to BM dated 06.08.2020;
vi.Direct an investigation into the mismanagement by the Respondents 2 to 5, 7 to 13 by an independent chartered accountant appointed by this Hon'ble Tribunal and surcharge the Respondents 2 to 5, 7 to 12 for the losses occasioned by the Petitioners;
vii.Reconstitute the Board of Directors such that the Petitioners and the 2nd Respondent have equal representation of the Board of Directors and have equal participation in the day-to-day management of the 1st Respondent Company;
viii.Pass such further orders as this Hon'ble Tribunal may deem fit in the facts and circumstances of the case.
In support of the relief as extracted supra, the Petitioners have made various averments in the Company Petition and the same is categorized in the following heads;
Investment by the (2^{\text{nd}}) Respondent
Competing Business with Fortis Healthcare
Other Competing Businesses
Mismanagement of Gleneagles Global Health City, Chennai
Mismanagement of BGS Gleneagles Global Hospital, Bangalore
Consistent violation of Fiduciary Duties
Board decision in violation of the Reserved Matters as per the AoA of the (1^{\text{st}}) Respondent Company
Impugned Board meeting dated 06.08.2020
Unwarranted Payment of service
BRIEF FACTS OF THE CASE
It is averred in the Application that the then CEO of M/s. Gleneagles Development Pte Ltd, the applicant in IA/767/2020 (for brevity hereinafter referred to as 'GDPT') approached the Promoter Group as they were looking for a partner in India with an intention to establish a chain of super speciality Hospitals.
It was submitted that subsequent to several meetings and negotiations between the Promoter Group and GDPT, the promoter group having convinced that the investment by GDPT into Ravindranath GE Medical Associates Private Limited Company, Applicant/Respondent No. 1 (for brevity hereinafter referred to as 'Promoter Group Company') would benefit the growth and expansion of the promoter Group Company. Subsequent to the negotiations various representations and assurances were given by GDPT which includes expansion of operation of the Promoter Group Company in Delhi/NCR, supply chain improvement, increase in customer base, introduction of digital marketing, International Standard Operating Procedures, International exchange programs etc.,
It was submitted that M/s. Gleneagles Development Pte Ltd, (GDPT) during the course of negotiation has sought to hold the Majority in the Board of the Promoter Company, for which certain prospective projections till the year 2021 (Annexure 5 in CP/301/2020) was given, upon which the Promoter Group agreed to vest the Operational Control and the day-to-day management of the Promoter Group Company with GDPT. As a consequence of the above-mentioned prospective Projections, an Investment Agreement dated 28.08.2015 was entered between the Promoter Group and GDPT whereby the shareholding of the Promoter Group in the Promoter Group Company was diluted to 21.22% while GDPT came to hold 74.76% in the Promoter Group Company. The key terms of the above-mentioned Investment Agreement dated 28.08.2015 were incorporated in the Articles of Association, which are as follows:
That the composition of the Board of Directors would at all times reflect the shareholding percentage of the 2nd Respondent and the Promoter Group. Accordingly, at present, the 2nd Respondent has three nominee directors while the Promoter Group has two nominee directors. Further, one nominee director from the respective groups shall be required to form valid quorum for all Board Meetings [Article 39(d)];
That in the event that the Promoter Group's shareholder reduces to below 15% of the 1st Respondent Company's equity share capital, they are entitled to have only one nominee on the Board of Directors. Further, if it falls below 5%, the Promoter Group shall lose their right to appoint a nominee director [Article 42 (b)(ii)];
That as long as the Promoter Group holds not less than 15% of the 1st Respondent Company's shareholding, they are entitled to have representation on the Procurement Committee [Article 43(c)]. It is submitted the said Procurement Committee, although an assurance of the 2nd Respondent at the time of investment, has never been functional;
That with respect to the general meetings held by the 1st Respondent Company; all resolutions passed require the affirmative vote of the 2nd Respondent's representative while resolutions in respect of the reserved matters contained therein require the affirmative vote of the 1st Petitioner as well so long as the Promoter Group represents at least 15% of the 1st Respondent Company [Article 41 read with Article 40(c)]. Further, if the shareholding of the Promoter Group reduces below 20%, they lose their right to vote affirmatively in respect of the items listed out in Article 41(c) including their mandatory affirmations required for any capital expenditure including mergers, amalgamations, acquisition of assets, securities or bonds in excess of Rs.5,00,00,000 in any financial year.
That should the shareholding of the Promoter Group reduce to below 20% of the 1st Respondent Company's shareholding, the Promoter shall lose its right of first refusal in respect of the 2nd Respondents shares in the event that they decide to sell the same [Article 31(a)].
That as part of the plan to expand the operations of the 1st Respondent Company, the Board of Directors may enable the future funding of the Company from the funds generated from the business and through various borrowings and as last resort may also infuse funds by means of increasing the authorized share capital of the 1st Respondent Company [Article 65].
Simultaneous to the Investment Agreement dated 28.08.2015, it was agreed that in lieu of a part of the consideration owed to the Promoter Group amounting to Rs. 146 Crores, the conversion ratios attached to the existing Convertible preference shares (CCPS) held by Dr. Ravindranath Kancherla and M/s. Global Hospitals Private Limited (GHPL) were allotted CCPS which is to be increased upon achievement of certain targets for the calendar year and Financial year 2016 and 2017 respectively. It was agreed that this would be structured in a manner such that the conversion ratio of the CCPS held by the Promoter Group would be modified to increase their shareholding on a fully diluted basis. In furtherance of the same, the parties entered into an Option Agreement dated 28.08.2015.
However, it was submitted that on account of the alleged mismanagement which is the subject matter in the main Company Petition in CP/301/2020 they were not able to achieve the target in the year 2016 and 2017, subsequent to which the said option Agreement was subsequently amended on 05.02.2018 according to which the said target is to be achieved within the end of 2018. Thus the cause of action of the main company petition in CP/301/2020 arose for the Petitioner and hence the same was filed before this Tribunal on 02.09.2020.
After filing of the said Company Petition, the first and second Respondents have moved IA/766/2020 and IA/767/2020 before this Tribunal on 28.09.2020 seeking thereof to refer the matter for Arbitration in terms of the clauses referred to in the Investment Agreement dated 28.08.2015.
APPLICATION UNDER SECTION 45 OF THE ARBITRATION AND CONCILIATION ACT, 1996
The Applicants in the instant applications have filed similar set of averments and prayers in both the application in IA/766/2020 and IA/767/2020 in CP/301/2020. Both the above mentioned Applications are filed under Section 45 of The Arbitration and Conciliation Act, 1996 alleging that the dispute in the main company application is arbitrable as per the Investment Agreement dated 28.08.2015. It is averred that though the dispute raised in the Company Petition is devoid of merits, arises out of the Investment Agreement dated 28.08.2015.
The Learned Counsel for the Applicant submitted that the said Investment Agreement contains an Arbitration Clause at Article 26 which prescribes amicable resolution of dispute, failing which it is mandated upon the parties to settle the dispute before an Arbitral Tribunal at Singapore. It is alleged that the Investment Agreement is not disputed and as the Arbitration Clause in Article 26 is an integral part of the Investment Agreement which is operative, capable of being performed and was also acted upon by the parties in good faith to amicably resolve the dispute in terms of 26.1 of the Investment Agreement.
It was further submitted that the Petitioners to the Company Petition in CP/301/2020 have deliberately suppressed the fact that there exists an arbitration clause in the Investment Agreement and has also exercised Article 26.1 of the Investment Agreement dated 28.08.2015. It is further averred that Article 26.1 further provides that parties should attempt to resolve disputes through good faith negotiations and discussions within 30 business days of the disputes having arisen, failing which Article 26.2 provides that the parties would be referred to arbitration before an Arbitral Tribunal under the Singapore International Arbitration Centre.
The Learned Counsel for the Applicants submitted that having setting out the reliefs in CP/301/2020, the Petitioners have alleged that the issues are related to the Investment Agreement dated 28.08.2015. It is averred that the Petitioners have pleaded unnecessary parties in CP/301/2020 as the reliefs sought are only against the Respondents 1 & 2 in CP/301/2020. It is further averred that the Respondent No. 1 herein have triggered the dispute resolution mechanism under Article 26 of the Investment Agreement vide email dated 04.07.2020 alleging the violations carried out. Subsequent to which discussions through email for amicable resolution of the dispute were made between the parties, copies of all the emails between the parties relating to amicable settlement are annexed along with the application.
The Learned Counsel for the Applicant submitted that the Respondents after triggering the dispute resolution procedure in accordance with Article 26, the parties have no option but to approach an Arbitral Tribunal seated at Singapore for adjudication of the dispute. It is further averred that the parties have only one of two possibilities either to successfully resolve the dispute through amicable means; failing which the dispute is to be referred to an Arbitral Tribunal. Thus, it is averred that the petitioners to the company petition have deliberately with mala fide intention having concealed the communication regarding amicable settlement have come up before this Tribunal with unclean hands dressing up the issues as Oppression and Mismanagement.
COMMON COUNTER FILED BY THE RESPONDENTS/PETITIONERS
The Respondents / Petitioners have filed counter and the Learned Counsel for the Respondents submitted that the applications are not maintainable in law or facts and deserves to be dismissed in limine. The Learned Counsel for the Respondents / Petitioner submitted that the main Company Petition arises out of various acts of Oppression and Mismanagement including violation of the Articles of Association of the Promoter Group Company which is very well within the ambit of Section 430 of the Companies Act, 2013.
The Learned Senior Counsel for the Respondent / Petitioner submitted that the acts of oppression and mismanagement would include (a) diversion of resources and business of the Promoter Group Company by the array of Respondents to other competing hospitals where GDPT holds substantial stake; (b) the unilateral and unfounded decision taken at the Board Meeting dated 06.08.2020 to curtail the powers conferred upon Respondent No. 1 as chairman of NRC by delegating the same in favour of the Respondent No. 12 & 13; (c) the nefarious mechanism adopted by the array of respondents with respect to the rights issue and Board Meetings dated 06.08.2020 and 21.09.2020 shows the mala fide intention of diluting the shareholding capacity of the promoter group and to curtail their special rights conferred upon them by virtue of their reduced shareholding as per the AoA. The respondent in page Nos 2- 3 of their Common Counter have explained as to why the array of respondents have been pleaded in the subject company petition in CP/301/2020. Further, it was submitted that Respondent No. 13 is responsible for the false financial projections and inaccurate budgets which is the cause of deterioration of the Promoter Group Company. Accordingly, it was submitted that the array of Respondents are jointly managing the Promoter Group Company at the behest of GDPT and is therefore responsible for Oppression and Mismanagement.
The Learned Senior Counsel for the Respondents/Petitioners submitted that the applicants have willfully suppressed the fact that the provision for raising additional capital is covered by Article 65 - 68 of the AoA under the caption of 'Future Funding'. It was further submitted that the impugned rights issue discussed at the Board Meeting dated 27.04.2020 is in furtherance of the Promoter Group Company's Charter Documents I.e., the MoA, the AoA and the Companies Act, 2013 that the reference to the investment agreement in the said meeting was a mere ancillary to the said charter documents and the Act.
The Learned Counsel for the Respondents/Petitioners submitted that the Notice of Dispute and the Investment Agreement are in no way a bar to the Company Petition filed in CP/301/2020 for agitating their rights falling well within the purview of Section 241 -242 of the Companies Act, 2013 and therefore cannot be left to arbitration. It is further averred that as the relief sought in CP/301/2020 are relating to management of the subject company's affairs and rights of its minority shareholders it can only be decided by this Tribunal under the relevant provisions of the Companies Act, 2013, as the Investment Agreement does not confer upon the Arbitral Tribunal the powers to pass orders on reliefs sought in Company Petitions and as such proceedings cannot involve the array of respondents who of not parties to the Investment Agreements. Accordingly, have prayed for dismissal of both the application in IA/766/2020 and IA/767/2020 in CP/301/2020 with cost.
REJOINDER FILED BY THE APPLICANTS
The Applicants in the instant Applications have alleged that the subject matter of the Company Petition is well within the ambit of the Investment Agreement and that the Respondent/Petitioners are beholden of the Dispute Resolution Clause of the said Agreement. It is alleged that the grievances relating to rights issue is within the four walls of the Investment Agreement. The Applicants having listed out the disputes between the parties, have alleged that those are contractual in nature, relatable to the Investment Agreement and as such are capable to be settled before an Arbitral Tribunal. It was submitted that each and every dispute pointed out in the Company Petition is related to the provisions of the Investment Agreement which contains valid Arbitration Clause which are mentioned between page nos. 4-8 of the rejoinder filed by the Applicants. It was further submitted that neither existence nor the validity of the Arbitration clause was challenged and that each and every claim in the Company Petition can be transformed into a breach of investment. It was further submitted that, it is trite law that any motion which purports to be a claim of Oppression and Mismanagement, but which is actually a dressed up contractual claim, ought to be referred to arbitration, if there exists a valid Arbitration Clause in the said Agreement. It was further submitted that anything which are not linked to the investment agreement are just add on to show a sustainable case of Oppression and Mismanagement.
The Learned Counsel for the Applicant submitted that not even an iota of evidence has been produced by the Respondent/Petitioners to substantiate their case that the Applicants have indulged in wrongful practices which amounts to mismanagement of the affairs of the Promoter Group Company and to prove that the Applicants being the majority shareholder of the Promoter group company have prejudicially affected the Respondents/Petitioners. It is further averred that the Respondent/Petitioners can no longer claim that their rights have been prejudicially affected by the applicants as they have declined to participate in the rights issue even after appointing a valuer during 2020 with respect to the rights issue. It is further averred that no bifurcation is made as the issues are stemmed from the Investment Agreement.
It is further averred that as the Respondents/Petitioners herein are seeking enforcement of an amendment to the Investment Agreement and a monetary claim of Rs. 90 Crore, which clearly shows that the Respondents/Petitioners are grasping at straws to fit their claims of breach of investment agreement into a case of oppression and mismanagement. It is averred that the reason as to array of other respondents is not acceptable as in a potential arbitration the aforementioned array of respondents can be called upon to give testimonials. Further, the inclusion or deletion of the array of the respondents are not necessary for adjudication of a potential arbitration or indeed, to determine the maintainability of the petition. Accordingly, the Applicants have prayed for reference of the subject matter in CP/301/2020 to the Arbitral Tribunal.
FINDINGS OF THIS TRIBUNAL
Heard the submissions made by the parties and perused the file including the pleadings placed on record and citations referred. From the submissions made by the Learned Senior Counsel for both the parties, taking into consideration the facts and circumstances of the present case, the issue which is required to be adjudicated by this Tribunal is that whether the dispute raised in the Company Petition CP/301/2020 can be referred to the Arbitrator under Section 45 of Arbitration and Conciliation Act, 1996.
In order to address the said issue, it is required to be noted first that all the parties to the Company petition in CP/301/2020 are not parties to the Investment Agreement dated 28.08.2015 which contains the clause for amicable settlement and Arbitration of disputes by an Arbitral Tribunal. Article 26 of the said Investment Agreement provides for dispute resolution involving four dispute resolution mechanisms vide Art. 26.1 Amicable Resolution, Art. 26.2 Arbitration, Art. 26.3 Final and Binding and Art. 26.4 Interim Relief.
It is pertinent to note that Article 12 of the Investment Agreement dated 28.08.2020 placed at Pg. No. 76 of the typed set of papers filed along with the application in IA/766/2020 expresses about 'Future Funding' with an intention to grow the company. It is found from the said agreement that funds shall be sourced in the following priority as mentioned hereunder (a) from funds generated in its business; (b) through borrowings from commercial banks and financial institutions, multilateral lending institutions and agencies on the basis of securities (if required) provided by any of the company's properties and assets and finally if it is not possible for the company to raise funds as set out in the above mentioned two ways, then the Board shall be entitled to seek fund from parkway or the promoter group by providing a notice of not less than 60 days to make a capital contribution in their respective shareholding proportions in accordance with the Fair Market Value as per Article 18 of the Investment Agreement. In case parkway or the promoter group is unable to bring funds either in part or in full of the funding requirements pursuant to the capital call, then the unfunded portion of such shareholder shall be funded by the other shareholders, in the form of equity thereby proportionately diluting such unfunded shareholder. The first priority to source fund for development of the promoter group company cannot flourish as the prospective projections did not prosper, secondly, borrowings from banks, financial institutions and other lending agencies upon securities were not fruitful as the Majority shareholders have failed to furnish Corporate Guarantee as required. Subsequent to which, the last method to source the fund required was adopted, not moving further, the failure on the first two priority source of future funding is itself evident to show that the dispute is not just relatable to the Investment Agreement rather it is related to the fiduciary and risk management affairs of the subject company. The reliefs sought in the main company petition which was emerged as a result of violation of minority shareholder rights as conferred by AoA and management affairs cannot be settled by way of arbitration, as the subject matter of the Company Petition in CP/301/2020 does not fall within the scope of the Investment agreement alone. The Companies Act, 2013 aims to protect the minority against the brute force of the majority. Moreover, disputes relating to mismanagement of the affairs of the company cannot be a subject matter for arbitration.
In the Company Petition CP/301/2020 filed by the Petitioners before this Tribunal, as already adumbrated supra, the Petitioners have made the following allegations as against the Respondents
Investment by the 2nd Respondent
Competing Business with Fortis Healthcare
Other Competing Businesses
Mismanagement of Gleneagles Global Health City, Chennai
Mismanagement of BGS Gleneagles Global Hospital, Bangalore
Consistent violation of Fiduciary Duties
Board decision in violation of the Reserved Matters as per the AoA of the 1st Respondent Company
Impugned Board meeting dated 06.08.2020
Unwarranted Payment of service
As against each head, the Petitioners have made numerous allegations against the Respondents in the Company Petition. In so far as the present Applications are concerned, the Arbitration clause subsist only in the Investment Agreement dated 28.08.2015. The Investment Agreement alone is not the subject matter of dispute in the present Company Petition CP/301/2020 filed by the Petitioners. The main Company Petition filed by the Petitioners are under Section 241 – 242 of the Companies Act, 2013 in the capacity as a shareholder of the Company. At this juncture, this Tribunal feel that it is significant to refer to the judgment in the matter of In re Kare P. Ltd. Surendra Kumar Dhawan and Another -Vs- R. Vir and Others; (1977) 47 Comp Cas 276, wherein it has been held that that the jurisdiction of the Company Law Board (CLB) under Sections 397 and 398 of the CA, 1956 is a statutory jurisdiction that cannot be ousted by arbitration clause. Also, the Supreme Court in Sumitomo Corporation -Vs- CDC Financial Services (Mauritius) Ltd; (2008) 4 SCC 91 upheld the order of the CLB rejecting a reference to international arbitration under Section 45 of the Arbitration and Conciliation Act, 1996 stating that the subject-matter of the petition under Sections 397 and 398 before the CLB was pertaining to the affairs of the company and not covered under the arbitration agreement.
It is a settled law that disputes pertaining to public law cannot be subject matter of arbitration by an Arbitrator. The Hon'ble Supreme Court in the matter of Haryana Telecom Ltd. v. Sterlite Industries (I) Ltd.; (1999) 5 SCC 688 opined that Section 8 of the Arbitration and Conciliation Act, 1996 postulates that what can be referred to the arbitrator, is only that dispute or matter which the arbitrator is competent or empowered to decide. The Supreme Court further opined that the power to order winding up of a company is contained under the Companies Act, 1956 and is conferred on the court, as such an arbitrator, notwithstanding any agreement between the parties, would have no jurisdiction to order winding up of a company.
The Hon'ble High Court of Bombay in the matter of Emgee Housing Private Limited & 2 Ors -Vs- ELS Developers Private Limited; 2016 SCC Online Bom 2391, while dealing with the similar issue, has held as follows;
14.I have considered the rival circumstances and the submissions made. The question whether the clause in Articles of Association (Clause 53 in this case), would tantamount to an arbitration clause, may not detain us long. The Hon'ble Apex Court in the case of Smt. Claude-Lila Parulekar (supra) has held in paragraph 25 of the judgment that the Articles of Association constitute a contract not merely between the shareholders and the Company, but between the individual shareholders also. Thus, the existence of an arbitration agreement as contained in Clause 53 of the Articles of Association cannot be disputed. The only question is whether in the face of Clause 53 and the provisions of Section 8 of the Arbitration Act, the CLB was required to refer the dispute for determination by an Arbitrator (a private forum).
15.In the case of Rakesh Malhotra (supra), this Court after taking a survey of several decisions holding the field has concluded in paragraph 124 of the judgment that the disputes in a petition "properly brought" under Sections 397 and 398 read with Section 402 of the Companies Act, 1956, cannot be referred to arbitration, subject to the caveat i.e. where the company petition is malafide, vexatious or oppressive, and one that is merely "dressed up" to avoid an arbitration clause, the matter can be referred to arbitration. The contention on behalf of the petitioner is that the company petition is indeed a "dressed up" petition in order to avoid the arbitration clause. The contention raised is that the reliefs claimed are personally against the petitioner no. 2 and thus, can be adjudicated by an Arbitrator.
16.In order to examine the said contention, it would be necessary to notice the case made out in the company petition and the reliefs claimed therein.
17.The petitioner no. 1-Company is incorporated with the object of carrying on business in real estate, as builders and contractors. The petitioner no. 2 is the Managing Director of the petitioner no. 1-Company. The petitioner no. 2 along with his family members and Company holds 65.45% shares of the petitioner no. 1-Company. The respondent no. 3 is a Company owned and controlled by the petitioner no. 2, which also holds a certain percentage of the equity capital of the petitioner no. 1-Company.
18.It is contended by the respondent that the petitioner no. 2 had approached the shareholders of the respondent-Company somewhere in March, 2006 for investing in petitioner no. 1-Company, by way of equity for purpose of funding a realty project in Goa assuring good returns in the long term. The respondent-Company had accordingly invested a sum of Rs. 1,42,50,000/-(Rupees One Crore Forty-Two Lakhs Fifty Thousand only), towards the share capital of the petitioner no. 1-Company, which aggregates to 12.5% of the paid up capital of the petitioner no. 1-Company. The respondent on 24.09.2008 entered into a MOU with the petitioner no. 2, Emgee Corporation Private Limited, Mrs. Geetanjali Gupta and Mr. Manoj Khalatkar, wherein it was agreed that the shareholding of the above shareholders would not be diluted by the Board and once the Company had surplus profits after repayments of all loans, the profits would be distributed in the same financial year and the Company would not undertake any new project besides the Goa (Odxel) project.
19.Disputes and differences cropped up between the parties in which the respondent approached the CLB with the petition under Section 397/398 of the Companies Act. It was inter-alia contended that the petitioner no. 2 has not stood by the assurance made at the time of investments by the respondent. The petitioner no. 2 has also not called for Annual General Meeting from the year 2008 onwards and the petitioner no. 2 is ignoring the respondent and not willing to disclose the affairs of the petitioner no. 1-Company. There are other allegations made against the petitioner no. 2 of indulging in financial irregularities like acceptance of cash, upon sale of the ready flats which has not been accounted for, and funds being siphoned for his personal use. It is also alleged that the petitioner no. 2 has not filed any IT or ROC Annual Returns until recently when he has availed of the amnesty scheme. There are some instances of mismanagement set out in paragraph 19 of the petition. It is alleged that the modus operandi of the petitioner no. 2 has been to create loan liabilities and then give the money back to group Companies. It is thus contended that the affairs of the Company are being conducted in a manner prejudicial to the interest of the minority shareholders. The respondent has claimed the following reliefs:
a. To remove the 2nd respondent as Director of the 1st respondent Company.
b. To direct the 1st respondent Company to furnish all relevant details pertaining to the Goa project like total apartments sold, amount received from the sale of flats etc.
c. To appoint a receiver for looking after the state of affairs of the 1st respondent Company and to manage the funds of the Company till the petition is disposed off.
d. Direct the 2nd respondent to purchase the shares of the petitioner Company at a price to be determined by an Independent Chartered Accountant firm.
e. Pass such further and other orders as this Hon'ble Company Law Board may deem fit and necessary in the circumstances of the case."
20.As noticed earlier, the normal rule is that a dispute in a petition which is "properly brought" under Section 397/398 read with Section 402 of the Companies Act cannot be referred to arbitration, except a small window where the petition is shown to be malafide and "dressed up" to avoid the arbitration clause.
21.Considering the case made out in the petition and the reliefs claimed therein, it is not possible to accept that the petition is an attempt to "dressed up" the claim so as to avoid the arbitration clause. Only because the allegations are against the petitioner no. 2 and the petition inter-alia seeks removal of the petitioner no. 2, it cannot be said that the dispute can be resolved by reference of the same to an Arbitrator. As noticed earlier, there are other reliefs incorporated for appointment of a receiver and a direction to the petitioner no. 2 to purchase the shares of the respondent-Company at a price to be determined by the independent Chartered Accountant firm. The CLB has noticed and to my mind rightly so, that the Judicial Authority before whom the action is brought in the matter can justifiably refer the parties to arbitration, provided that the Arbitrator is competent or empowered to decide the said dispute between the parties. Considering the provisions of Section 402 of the Companies Act, the CLB has wide powers to give various reliefs in the wake of allegations of oppression and mismanagement made against the majority shareholders.
A useful reference, at this stage may be made to the decision of the Hon'ble Supreme Court in the case of Booz Allen and Hamilton Inc. (supra). One of the questions framed in that case was whether the subject matter of the suit was arbitrable i.e. capable of being adjudicated by a private forum. The Hon'ble Apex Court considered the scope and the ambit of the term "arbitrability" and has inter-alia held that the said term has different meaning in different contexts. Paragraphs 32 to 34 may be extracted with profit as under:
'32. The nature and scope of issues arising for consideration in an application under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of "arbitrability" or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the Arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon sub-section 2(b)(i) of that section.
33.But where the issue of "arbitrability" arises in the context of an application under Section 8 of the Act in a pending suit, all aspects of arbitrability will have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject-matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.
34.The term "arbitrability" has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the Arbitral Tribunal, are as under:
(i)whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the Arbitral Tribunal) or whether they would exclusively fall within the domain of public fora (courts).
(ii)Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the "excepted matters" excluded from the purview of the arbitration agreement.
(iii)Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the Arbitral Tribunal, or whether they do not arise out of the statement of claim and the counterclaim filed before the Arbitral Tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be "arbitrable" if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the Arbitral Tribunal."
It can thus be seen that unlike Section 11 of the Arbitration Act, the "Judicial Authority" considering the application under Section 8 of the Arbitration Act will have to decide "all aspects of arbitrability" as held by the Hon'ble Apex Court and even if, there is an arbitration agreement between the parties and even if, the dispute is covered by the arbitration agreement, the Court/Judicial Authority will refuse the application under Section 8 of the Arbitration Act, if the subject matter of the dispute is capable of adjudication only by a public forum. (emphasis supplied)
The Hon'ble Bombay High Court in Rakesh Malhotra -Vs- Rajinder Kumar Malhotra; (2015) 192 Comp Cas 516 held as follows:
(a)a petition that is merely "dressed up" and seeks, in the guise of an oppression and mismanagement petition, to oust an arbitration clause, or a petition that is itself vexatious, oppressive, mala fide (or, at any rate, not bona fide) cannot be permitted to succeed;
(b)in assessing an allegation of "dressing up", the Sections 397/398 petition must be read as a whole, including its grounds and the reliefs sought;
(c)it cannot be carved up and deconstructed so as to bring some matters within the arbitration clause and leave other matters out; and;
(d)where there are reliefs that are not arbitrable because they fall within Section 402 of the CA, 1956, there is no question of a dismissal of the petition on the ground that there exists an arbitration clause.
There are numerous instances where the Investors have approached the erstwhile Company Law Board / NCLT for redressal of their grievances against the Oppression and Mismanagement even if there is an arbitration agreement contained in the Agreements and as a consequence in the Articles of Association of the Company. On the basis of the presence of the arbitration clause the court is not liable to dismiss the proceeding under section 397 and section 398 of the Companies Act, 1956. The said proposition is supported by the decision of the Hon'ble High Court of Delhi, in O. P. Gupta v. Shiv General Finance (P.) Ltd. (1977) 47 Comp Cas 279 (DEL) where it has been held that the article of association of the company provides for the disputes between the members of the company to be resolved by arbitration, such clause would not make it mandatory for the court to stay the petition, subject matter of which involves relief in the case of oppression and mismanagement. Thus, it is evident that mere existence of arbitration clause in articles of the company or any Agreement thus, would not be enough for the purpose of staying proceedings under section 397 or section 398.
It is reiterated that in relation to issues pertaining to Oppression and Mismanagement, only the NCLT has exclusive jurisdiction to hear the dispute and the said power is conferred by the statute and the law of the land. The jurisdiction of the Companies Act, 2013 being the supreme, cannot be ousted by any Agreement or an Arbitration clause as they shall be hit by public policy violations.
Thus, from the plethora of judgments cited above, it is no longer res integra that when a matter pertains to adjudication of dispute in relation to public law and the statute confers a specific power to adjudicate such dispute, the same cannot be referred to Arbitration. In the present case, neither the Memorandum of Association nor the Articles of the Company contemplate for Arbitration clause, however only the Investment Agreement entered into between the parties on 28.08.2015 speaks about the Arbitration Clause. The present Company Petition CP/301/2020 does not revolve only around the Investment Agreement dated 28.08.2015, it also makes various allegations regarding the mismanagement of the Respondent Company and the same cannot be subject matter of Arbitration. Hence for the aforestated reasons, we are of the view that the IA/766/2020 and IA/767/2020 filed by the Respondent Company seeking to refer the parties for arbitration is devoid of merits and deserves to be dismissed and accordingly stands dismissed. No costs.
Since the IA/766/2020 and IA/767/2020 seeking to refer the parties for arbitration is Dismissed by way of this Common order, let the CP/301/2020 be posted for final hearing on 06.04.2022.