S. Balasubramanian, Chairman
1. Whether a reply filed by a respondent to an application seeking for interim relief could be considered to be the first statement of substance disentitling the said respondent from invoking the provisions of Section 8 of Arbitration and Conciliation Act, 1996 seeking for referring the parties to arbitration is the main issue that has arisen for consideration in this order.
2. The facts of the case are: The petitioners have filed this petition under Section 397/398 of the Companies Act, 1956 alleging oppression and mismanagement in the affairs of Pantheon Infrastructure Pvt. Ltd. (the company). The 2^ndpetitioner, a Canadian National (Group A) entered into an agreement dated 23.12.1999 with the 2^ndrespondent (Group B) to form a joint venture to purchase and develop a property then belonging to M/S Park Davis Limited. Some of the salient terms of the agreement are:
a. Both Groups will have equal shares in the company.
b. Both will contribute equally towards the consideration for the property,
c. Group B will be entitled to sell, lease, pledge or otherwise dispose of the property in consultation with Group A.
d. All the funding by the Groups will be repaid out of the sale proceeds and the resultant profit will be divided equally.
e. Of the 6 directors on the Board, each Group will appoint 3 nominees and till the property was conveyed to the company, the 2^ndpetitioner was to be the Chairman and thereafter the Chairmanship would be rotated between the two Groups every year.
f. No decision is to be taken in Board meetings unless a quorum of two representing both the Groups is present,
g. Certain decisions have to be taken with the affirmative vote of both the Groups.
h. Conditions have been fixed under which transfer of shares would be permissible and pre-emptive rights have also been provided.
i. An arbitration clause in the following terms has been included in the agreement "Any disputes or difference of opinion in connection with the interpretation of this agreement as well as implementation and execution thereof or any matter concerning the matters contained herein or in connection with the affairs of the company or in connection with any deadlock which may arise at any meeting whether that of board of directors or members in general meetings, shall be settled by the parties by mutual discussion and in the even of failure of the parties hereto to resolve the said differences or disputes, same will be referred to arbitration, and such proceedings shall be in accordance with the provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification or re-enactment thereof for the time being in force and the place of arbitration will be Mumbai.
3. By a supplementary agreement dated 15^th June, 2000, the 3^rd respondent (Group C )was also inducted as a shareholder and it was provided that all the three Groups would have l/3^rd shares in the company and to effect this shareholding Group A and B would transfer shares to Group C. Thereafter, the respondent was also inducted as a shareholder by which all the three Groups agreed to divest 5% shares in favour of the 4^th respondent on the understanding that he would bring in Rs. 15 crores into the company. At this stage, the shareholding in the company was to be- Group A, B, C each 28.33% and the 4^th respondent-15%. The main allegation of the petitioners in the present petition is that the 2^ndrespondent, in the guise of divesting the shares in favour of the 3^rd and 4^th respondents, has actually cornered the divested shares to himself/his associate companies and by doing so, presently he is controlling 71.67% shares in the company as against the original understanding that Group A and Group B each would hold 50% shares each in the company. Other major allegations are that the 2^ndrespondent, being in control of the company, has sold/leased out constructed areas of the project below the market rates and has thus siphoned of the funds of the company and that the 2^ndpetitioner has been illegally declared to have ceased as a director in terms of Section 283(l)(g) of the Act.
4. When the petition was mentioned and interim reliefs were sought on 9.12.2005, the respondents desired to have some time to file their replies to the prayer for interim reliefs. Accordingly, the matter was adjourned to 15.12.2005. The 2^ndrespondent filed an affidavit in reply to the interim reliefs on 14.12.2005. On 15.12.2005, the matter relating to grant of interim reliefs was part heard and concluded on 19.12.2005. On 19.12.2005, 1^st, 2^ndand 6^th respondents- each filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 (the Act) seeking for referring the parties to arbitration in terms of the arbitration clause in the agreement dated 23.12.1999 and also in terms of Article 26 of the AOA of the company. These applications have been opposed by the petitioners on various grounds.
5. Shri Sarkar, Sr. Advocate for the 2^ndrespondent submitted: The disputes raised in the petition should be referred to Arbitration in view of the mandatory provisions of Section 8 of the Act. In the first agreement dated 23.12.1999, there were two groups, namely, the 2^ndpetitioner and the 2^ndrespondent. This agreement specifically provides for Arbitration of not only disputes arising out of the agreement but also disputes in connection with affairs of the company. In the supplementary agreement dated 15.6.2000 when the 3^rd respondent was admitted as a member, all the terms of the principal agreement were stipulated to remain intact. Therefore, the parties have consciously elected a private fora even in respect of disputes in relation to the affairs of the company. Since a petition under Section 397 is in respect of the affairs of a company and when the shareholders have decided that even the disputes in the affairs of the company are to be referred to arbitration, the provisions of Sections 397/398 cannot be invoked. The company Law Board, being a court of equity, cannot assist a contract breaker by entertaining this petition by ignoring his contractual obligation. When the supplementary agreement was entered into on 15.6.2000 for admitting the 3^rd respondent as a shareholder, this arbitration clause was not modified. As a matter of fact, the petitioner himself, in his letter dated 6^th November, 2005 (Annexure P-39), has specifically mentioned that the 3^rd and 4^th respondents were bound by the agreements dated 28 Dec. 1999 and 15^th June, 2000. So far, the petitioner's investment in the company is only Rs. 2.45 crores and if he had sufficient funds, he would not have agreed for induction of the 3^rd and 4^th respondents as shareholders. The main prayer of the petitioner is that he should be put back as a 50% shareholder which claim could arise only based on these agreements and if so, the same is squarely covered by the arbitration agreement. At this stage, while considering an application under Section 8, the question is not whether relief sought could be granted or not but whether the matter should go to arbitration, since Section 8 of the Act talks of only the subject matter and not of relief. Further even the Article 26 of the AOA of the company stipulates that any disputes relating to the affairs of the company should be referred to arbitration.
6. The learned Counsel further submitted: A reply filed to contest granting of interlocutory relief can never be considered to be the first statement of substance to deny invocation of Section 8 of the Act. The various provisions of the Arbitration Act would indicate that when the parties have entered into an arbitration agreement, it is mandatory for a judicial forum to refer the disputes to arbitration. If an application is made seeking for vacation of an ex-parte order, the same has naturally to give justification by dealing with facts of the case and as such cannot be considered to be the first statement on the substance of the matter to be covered under Section 8(1) of the Act. Similar is the position when a reply is filed in respect of an application for interim relief. In Johnson Rubber Industries v. G.M. Eastern Railways 2001 1 Raj 294, the Delhi High Court has held that the words "first statement on the substance of the dispute" can only mean written statement, that is, reply to the petition and not interim affidavits. Unless and until the reply to the interim application indicates an unambiguous and unequivocal abandonment of the right to move an application under Section 8 and intention to proceed with the legal proceeding, the right to move such an application cannot be denied. In the said application, the 2^ndrespondent has specifically stated that the affidavit was for the limited purpose of opposing grant of interim reliefs. As a matter of fact, the 2^ndand the 6^th respondent had already invoked the arbitration agreement by a notice to the petitioner on 18.12.2006 and on the next day these applications were filed. Thus, the respondents had never abandoned their right to go for arbitration. In the supplementary affidavit filed on 19.12.2006, the 2^ndrespondent had specifically referred to the arbitration agreement and had sought for deferring the hearing till the disposal of his application under Section 81. In Food Corporation of India v. Yadev Engineering Contractor , it has been held that
interlocutary matters do not amount to waiver of rights. In General Electric Co. v. Renusagar Power Co Ltd it has been
held that intention to waive should be unambiguous. From the reply filed by the 2^ndrespondent, no inference can be drawn that he has abandoned his right to seek for referring the disputes to arbitration nor he has waived his right. In Naveen Kedia v. Chennai Power Corpn. Ltd. 1995 CC 640 and Bhadresh Kantilal Shah v. Magotteaux International 111 CC 220, this Board has held that matters complained of in a petition under Sections 297/398, if covered in by an Arbitration agreement, then the same should be referred to arbitration.
7. Shri Mookerjee, Senior Advocate, appearing for the petitioners submitted: The present applications are completely misconceived. Both the respondents 1 and 6 have no locus standi to file an application under Section 8 as neither of them is a party to the agreements. In so far as the 2^ndrespondent is concerned, he had lost the right to file the application as he had already filed his first statement on the substance of the disputes. Once a party files his first statement on the substance of the disputes prior to filing of an application under Section 8 of the Act, he cannot maintain the application. By filing a reply to the application for interim relief, the 2^ndrespondent has forfeited his rights to apply for referring the matter to arbitration under Section 8 of the Act and the right of the petitioner to proceed with the present petition has accrued. In the reply, each and every one of the allegations in the petition has been extensively dealt with in more than 70 paragraphs with positive assertion. As a matter of fact, in paragraph No. 2 of his reply dated 14.12.2005, the 2^ndrespondent, even though has stated that present affidavit was for the limited purpose of opposing the grant of any interim relief, had also sought leave to file a detailed affidavit, if required. This affidavit is also supported by 200 pages of documents. There is not a single reference in the reply about arbitration agreement and as a matter of fact after dealing with all the allegations, the 2^ndrespondent has sought for dismissal of the petition itself. This would indicate that all the averments in the reply are on the substance of the allegations in the petition. Even though disputes were going on between the parties, at no time the 2^ndrespondent referred to arbitration agreement. The petition was mentioned after notice and even then recourse to arbitration was not sought on the day of mentioning of the petition except seeking for leave to file a reply to the interim relief. The 2^ndrespondent had also filed a caveat in November 2005 before this Board. Only on 19^th December, 2005, the present application under Section 8 of the Act was filed and on the same day, he also filed a second supplementary affidavit. Even in this, dismissal of the petition has been sought. The very fact that a prayer has been made for dismissal of the petition, it would amount to abandonment of his right under Section 8 of the Act. Further, in none of the hearings till 19^th December, 2005, any reference was made by the respondents regarding the arbitration agreement. The stand of the respondents that reply to an application for interim relief cannot be considered to be the first statement on the substance cannot be accepted. Such a claim has been rejected by this Board in Suresh Kumar Jain v. Hindustan Ferro Industries Ltd. 1963 96 CC 507. As far as the contention of the respondents that to resist or to seek vacation of the interim order, allegations have to be dealt with in detail is concerned, it could be done provided an application under Section 8 had already been filed or is filed along with the reply. But in the present case, it was done only after about 10 days. In P. Anand Gajapathy Raju v. P.V.G. Raju , the
Supreme Court has held that after first statement on substance is filed, no reference to arbitration can be made unless the right is waived by the other party. In the present case, the petitioners do not wish to waive their right to proceed with the petition. In Sudershan Chopra v. CLB 2004 2 ARB LR 241, the Punjab & Haryana High Court has held that the words "First statement on the substance of the disputes does not mean written statement and any interlocutory application or reply to any interlocutory application can be construed as a first statement on the substance of the dispute". In Vijay Kumar Chopra v. Hind Samachar Limited, this Board has rejected an application under Section 8 of the Act on the ground that the applicant had dealt with the substance of the petition in his interim replies and other applications.
8. The learned Counsel further submitted: Not only these applications are not maintainable for the reasons stated above, they are not maintainable for other reasons also. There is no commonality of parties, the company is not a party to the arbitration agreement, action under Section 397/398 being a representative action cannot be a subject matter of arbitration, relief that could be granted under Section 402 of the Companies Act cannot be granted by the arbitrator, many of the allegations like siphoning of funds etc. are not covered in the Arbitration Agreement etc. In the petition, reliefs have been claimed against all respondents most of whom are not parties to the arbitration agreements. To substantiate his arguments, he relied on the following case laws.
(1) Badrush Kantilal Shah v. Magotteaux International Ltd. 2000 2 CLJ 323; Proceedings under Sections 397/398 of the Companies Act cannot be referred to arbitration if the company is not a party to the arbitration agreement.
(2) Sukanaya Holdings Pvt. Ltd. v. Jayesh H. Pandiya and P. Anand Gajapathi Raju v. P.V.J. Raju
: To refer the disputes to arbitration, the entire
subject matter of the action must be the subject matter of the arbitration agreement.
(3) Haryana Telecom Ltd. v. Sterlite Industries (India)Ltd. 1999 5 SCC 688: The arbitrator must be capable of granting reliefs sought for in the petition.
(4) Gautam Kapur v. Limrose Engineering CP No. 18 of 2002-CLB: If all the allegations raised cannot be examined or reliefs sought cannot be granted without reference to the arbitration agreement, then only the matter can be referred to arbitration.
9. Dr. Singhvi appearing for the 2^ndpetitioner submitted: The 6^th respondent, who is the wife of the 2^ndrespondent and who has filed CA 60 of 2005 is not a party to any of the agreements and as such he has no locus standi to invoke Section 8 of the Act. In terms of Section 7 of the Act, Arbitration Agreement should be signed by all the parties and obviously the 6^th respondent is not a signatory to any of the agreements. From the chart of allegations made in the petition, it would be evident that the respondents are guilty of gross oppression and mismanagement including fraudulent acts which are not arbitral. He cited the following cases to substantiate his argument that the applications should be dismissed. He relied on the following cases in support of his submissions:
1. Sunair Hotels Ltd. v. Union of India 2001 1 RAJ 406-Del:Since in the reply filed, there is no prayer for referring the parties to arbitration, there is no compliance with the provisions of Section 8 of the Act.
2. KandwaIa Securities Ltd. v. Kowa Spinning Ltd. 2000 1 CLJ 78-CLB Even if there is an arbitration agreement, if there are allegations independent of the arbitration agreement, then, they cannot be referred to arbitration.
3. Gauri Spinning Mills Ltd. v. Adimwlam 2002 Subl. LR 376-Mad: If the company is not a party to arbitration, the agreement does not bind the company.
4. Promod Chiman Bhai Patel v. Lalit Construction
():Arbitration agreement to be signed by all the
10. In rejoinder, Shri Sarkar submitted: The very purpose of enacting Arbitration & Conciliation Act, 1996 is with a view to ensure that the parties agitate their disputes in the contractual forum elected by them. That is the reason why in terms of Section 5 of the Act, minimal judicial intervention in the matter of arbitration has been provided. The object of Section 8 of the Act is to bar a party to an arbitration agreement to move a judicial forum. In other words, technicalities should not come in the way of referring the parties to arbitration. Under Arbitration Act of 1940, interlocutory applications are not a bar to seek stay of the judicial proceeding. If so, the 1996 Act being pro arbitration, Section 8 could never envisage that interlocutory reply could be considered as a the first statement of substance. This Section is not meant to assist a person breaking his contractual obligation. If one does not apply for vacation of the interim order with proper material, during the pendency of an application under Section 8, he has to suffer the interim order against a person who has broken his contractual obligation. Therefore, the provisions of Section 8 should be construed objectively, taking into consideration that contesting applications for interim reliefs should not be deemed to be a waiver of the right under Section 8 of the Act. In Jashu M Parel v. Shivdatta R. Joshi (Manu/MH/1016/2002), the Bombay High Court has held that unless the interim reply unequivocally discloses that the respondent has waived his right under Section 8, he can subsequently file an application under Section 8. In most of the cases cited by the counsel for the petitioners, there was enormous delay in filing an application under Section 8 of the Act after interim applications were heard but in the present case, Section 8 applications were filed within the shortest possible time i.e. on 19.12.2005. The contention that the company is not a party to the arbitration agreement cannot be considered as in the Articles of the company, it is specifically provided that any dispute in the affairs of the company should be referred to arbitration. In so far as the contention that many of the respondents are not parties to arbitration agreement is concerned, in Airtouch International (Mauritius)Ltd. v. RPG Cellular Investments and Holdings P. Ltd. 121 CC 647, CLB has held that a shareholders' agreement containing arbitration agreement cannot be frustrated by adding third parties against whom no relief has been claimed. In the present case, the 5^th respondent is an Executive Director and employee of the company and the 15^th respondent is an independent Chartered Accountant. Therefore, they are not necessary parties. However, all the respondents are agreeable for referring the disputes to arbitration. Further it is also wrong to contend that matters contained in a petition under Sections 397/398 cannot be referred to arbitration as the Delhi High Court in Gurnir Singh Gill v. Saz International Pvt. Ltd. 62 CC 197 has held that in terms of powers under Sections 397 to 403 of the Companies Act, the court can refer the disputes to arbitration. In so far as the locus standi of the 1^st ad 6^th respondents is concerned, the 6^th respondent being a part of Group B is bound by the agreement as such can seek for referring the disputes to Arbitration. Even otherwise, in view of Article-26, since disputes relating to the affairs of the company have to be referred to arbitration, as a shareholder she can file this application, Same is the position with the company viz the 1^st respondent.
11. I have considered the pleadings and arguments of the counsel. All these three applications have been filed under Section 8 of the Act, which reads:
(1) A judicial authority before which an action is brought in a matter which is the subject matter of an arbitration enactment, shall, if a party so applies not later than when submitting his first statement on the substance of the dispute refer the parties to arbitration.
(2) The application referred to in Sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.
(3) Notwithstanding that an application has been made under Sub-section (1) and the issue is pending before the judicial authority, an arbitration may be commenced or continued and an arbitral award made.
12. In so far as the application of the 1^st respondent is concerned, it has been filed on the strength of Article 26 of the AOA of the company. The 6^th respondent has invoked the provisions of Section 8 on the strength of her being a member of Group B and during the hearing it was urged that in her capacity as a member also, she has filed this application invoking the provisions of Article 26 of AOA of the company. The 2^ndrespondent has filed a similar application on the strength of his being a party to the agreement dated 23.12.1999. It is to be noted that neither the 2^ndrespondent nor the 6^th respondent has filed a copy of the agreement along with the application as is required to be done in terms of Sub-section (2) of Section 8 of the Act. Failure to do so has not been pressed during the hearing by the counsel for the petitioner, perhaps, because a copy of the two agreements are already on record in the petition filed by the petitioners. In so far as the locus standi of the 6^th respondent on the ground of her being a part Group B is concerned, the admitted fact is that she is not a signatory to either of the agreements. Section 8 gives a party to the agreement a right to file an application under this Section. Section 2(1)(h) states that a "Party means a party to an arbitration agreement" and Section 7 (4) says an arbitration agreement is one which is signed by the parties. Thus, it is clear that only a party who has signed an arbitration agreement could file an application under Section 8. Regarding the locus standi of the company and the 6^th respondent by virtue of Article 26, I do not propose to examine the same at this stage. In so far as the 2^ndrespondent is concerned, in terms of Section 8(1), since he is party to the agreement dated 23.12.1999, he has the locus standi to file this application.
13. The main issue in respect of the application of the 2^ndrespondent is whether he can maintain the same in view of his having filed a reply to the interim application, which according to the petitioners is the first statement on the substance of the dispute. The fourth page "of the petition is a letter addressed to the Bench Officer dated 7.12.2005 with a heading "Urgent Application" seeking for treating the accompanied petition as a urgent one as urgent directions/restraint order of the CLB were required against respondents. There was no separate application seeking for interim reliefs but in the petition, the petitioners had sought 16 interim reliefs. When the petition was mentioned on 14.12.2005, the respondents sought for time to file a reply on the interim reliefs sought. In the reply filed by the 2^ndrespondent on 14.1.2005, in paragraph 2, he has indicated that he was filing the affidavit for the limited purpose of opposing grant of any interim relief reserving the leave to file a detailed affidavit as and when required. Arguments on interim reliefs were heard on 14/12/2005 and continued and concluded on 19^th December, 2005. The instant application under Section 8 was filed on 19.12.2005. In this factual matrix and taking into consideration the provisions of Section 8 of the Act that the application under Section 8 should be filed not later than when submitting the first statement on the substance of the disputes, whether the present application can be entertained. While according to the petitioners, since the 2^ndrespondent has extensively dealt with the allegations in the petition including seeking for dismissal of the petition, this reply should be considered as the first statement on the substance of the disputes, it is the contention of the 2^ndrespondent that a reply to oppose grant of interim reliefs cannot be considered as the first statement on the substance of the disputes. Both the sides have referred to various case laws to substantiate their stand as indicated earlier as a part of their arguments. Shri Sarkar referred to P. Anand Gajapati Raju case 2000 4 4 SCC 688 to contend that even after reply to the main petition had been filed, the parties were referred to Arbitration. In that case, the Supreme Court considered whether during the pendency of the proceeding, parties could enter into arbitration agreement and seek for referring the disputes to arbitration. Holding that a right is created in the person bringing the action to have the disputes adjudicated by the court once the other party has submitted his first statement of defense, allowed the matter to be referred to arbitration since the other party had not objected to the same even after filing of the first statement. In the present case, the petitioners are not agreeable and as such, that case has no relevance in the present case.
14. The effect and consequence of filing of affidavits at the interim stage have been judicially examined in a number of case both in terms of Section 34 of the Arbitration Act 1940 and Section 8 of the present Act. While in respect Section 34 of 1940 Act, taking any step under the proceeding or filing of a written statement before filing of an application for stay would bar the relief, in respect of Section 8 of the new Act, filing of the first statement on substance would bar the relief. In General Electric Co. , (supra) the Supreme Court has held "A step in the proceeding which would disentitle the defendant from invoking Section 34 of the Arbitration Act should be a step in aid of the progress of the suit or submission to the jurisdiction of the court for the purpose of adjudication of the merits of the controversy in the suit. The step must be such as to manifest the intention of the party unequivocally to abandon the right under the arbitration agreement and instead to opt to have the dispute resolved on merits in the suit. The step must be such as to indicate an election or affirmation in favour of the suit in the place of the arbitration. The election or affirmation may be by express choice or by necessary implication by acquiescence. The broad and general right of a person to seek redressal of his grievances in a court of law is subject to the right of the parties to have the disputes settled by a forum of mutual choice. Neither right is insubstantial and neither right can be allowed to be defeated by any manner of technicality. The right to have the dispute adjudicated by a civil court cannot be allowed to be defeated by vague or amorphous mis-called agreements to refer to 'arbitration'. On the other hand, if the agreement to refer to arbitration is established, the right to have the dispute settled by arbitration cannot be allowed to be defeated on technical grounds ". In the above case, the Court had considered the judgment in Food Corporation of India case (supra), dealing with Section 3 of Foreign Award Recognition & Enforcement (Act), 1961 wherein it is provided that to seek stay of the proceedings, the parties should apply before filing a written statement or taking any other step under the proceedings. The Supreme Court has held "that taking any other step in the proceedings must be given a narrow meaning and that the steps must be taken in the main proceedings of the suit and it must be such step as would clearly unambiguously manifest the intention to waive the benefit of the arbitration agreement and to acquiesce in the proceeding. Interlocutory proceeding are incidental to the main proceedings. They have a lift till the disposal of the main proceeding. As the suit or the proceeding is likely to take some time before the dispute in the suit is finally adjudicated, more often interim orders have to be made for the protection of the rights of the parties. Such interlocutory proceedings stand independent and aloof of the main dispute between the parties involved in the suit. They are steps taken for facilitating the just and fair disposal of the main dispute. When these interlocutory proceedings are contested it cannot be said that the party contesting such proceedings has displayed an unequivocal intention to waive the benefit of the arbitration agreement or that it has submitted to the jurisdiction of the court. When ex parte orders are made at the back of the party the other party is forced to come to the court to vindicate its right. Such compulsion cannot disclose an unambiguous intention to give up the benefit of the arbitration agreement. Therefore, taking any other steps in the proceedings must be confined to taking steps in the proceedings for resolution of the substantial dispute in the suit. Appearing and contesting the interlocutory application by seeking either vacation thereof or modification thereof cannot be said to be displaying an unambiguous intention to acquiesce in the suit and to waive the benefit of the arbitration agreement. Any other view would both be harsh and iniquitous and contrary to the underlying intendment of the Act". In Jashu M. Patel case (supra) the Bombay High Court, while dealing with the term "The first statement on the substance of the disputes" as in Section 8, referring to Food Corporation of India case, has held "To hold that a reply to an interim application or interlocutory application is the first statement of the substance of the dispute, the reply must disclose that the party is aware of the arbitral clause; that the subject matter of the "suit or proceeding" and the reliefs sought are covered by the arbitral clause and having such knowledge knowingly and unequivocally intends to proceed with the suit or proceedings before the judicial authority by acquiescing in the continuation of the suit or proceeding".
15. Thus the ratio that emerges from these cases is that, since interim proceedings are only incidental to the main proceedings, unless and until, the interim affidavit discloses, unambiguously, the intention of the respondent to proceed with the proceeding in the court and waive the benefit of the Arbitration, neither an application under 34 of the old Act nor one under Section 8 of the new Act could be dismissed. Shri Mookerjee, referring to the judgment of the supreme Court in Sundaram Finance Limited Vs NEPC India Ltd 1999 2 SCC 479 contended that the provisions of the 1996 Act should be independently interpreted without reference to the principles, underlying the repealed Act of 1940. It may be so, but when the decisions relate to the impact and consequences of filing of interim affidavits, which is the subject matter of both Section 34 of the old Act and Section 8 of the present Act, I am of the view the decisions relating to the old Act could be beneficially referred and relied on. Further, decision is Jeshu Patel case is squarely on the provisions of Section 8 of the present Act. As rightly pointed out by Shri Sarkar, the new Act being pro arbitration, the interpretation in respect of Section 34 of the old Act, should apply while considering whether, the interim reply could be considered to be the first statement of substance. If the interim reply/affidavit, even if it is brief and thin, discloses, unambiguously, the intention of the respondent, to submit to the jurisdiction of the Court, forgoing the benefit of arbitration, then, the said interim affidavit/reply should be treated as the first statement of substance of the disputes. In the corollary, even if the interim reply is long and bulky but does not disclose the intention of the respondent to submit to the jurisdiction of the Court and forego the benefit of Arbitration, then the said interim reply/affidavit cannot be construed as the first statement of substance, disentitling from seeking for reference to arbitration under Section 8 of the Act.
16. On the basis of the above interpretation, it is to be examined whether the interim reply filed by the 2^ndrespondent on 14.12.2005 could be considered as the first statement on substance of the dispute holding that he has expressed his unambiguous intention to proceed with the present petition. In the affidavit dated 14.12.2005, in paragraph 4, the 2^ndrespondent has sought for dismissal of the petition on the ground that the petitioners had misused the provisions of Sections 397/398 of the Companies Act, that the petitioners have suppressed material facts and have also made false statements etc. Thereafter, in paragraph 5, he has narrated, in 40 sub paragraphs, the historical aspects of the case and thereafter in 86 paragraphs, he has dealt with each paragraph of the petition, finally seeking for dismissal of the petition with compensatory costs. The contention of the petitioner is that since in this affidavit, the 2^ndrespondent has dealt with each and every allegation with positive assertion and has also sought for dismissal of the petition, this affidavit is not only the first statement on the substance but also discloses his intention to abandon the benefits of arbitration agreement. The length of the reply has to be compared with the reliefs sought. The admitted position, as already pointed out, is that, there is no separate application by the petitioners seeking for interim reliefs. The petition itself contains 16 prayers as interim reliefs and the respondent would not know which of them would be pressed during the hearing. The reliefs sought relate to various allegations in the petition and if the respondent were to contest the grant of each of the interim reliefs, perforce, he has to answer all the allegations. Therefore, on the basis of the length of the interim reply or on the basis that each and every allegation has been dealt with, the interim affidavit cannot be straight be treated as the first statement on the substance of the disputes. As held in the above cited cases, more particularly in Jeshu Patel case, what is to be seen is whether, the affidavit discloses, unambiguously, the intention of the 2^ndrespondent that he has chosen to elect to proceed with the present proceeding. Admittedly, there is no positive averment to this effect. Can the same be implied?. I do not think such an inference could be implied if I apply the judgment in Jeshu Patel case wherein the learned Judge has held "the reply must disclose that the party is aware of the arbitral clause; that the subject matter of the "suit or proceeding" and the reliefs sought are covered by the arbitral clause and having such knowledge knowingly and unequivocally intends to proceed with the suit or proceedings before the judicial authority by acquiescing in the continuation of the suit or proceeding",. Petitioners argued that since the 2^ndrespondent has not referred to the Arbitration agreement at all in the reply, the absence of which, according to the petitioners is a clear case of his abandonment of the right to seek for reference to arbitration, but if we apply the decision in Jeshu Patel case, the absence of any mention about the arbitration in the reply would go in favour of the 2^ndrespondent. In other words, the 2^ndrespondent has neither exhibited his awareness of the Arbitration agreement nor his knowledge that the subject matter of the present proceeding is covered in the said agreement. Therefore, it cannot be presumed, that with the said knowledge, he has unequivocally intended to proceed with the present proceeding. Further not only, even before the hearing on the interim reliefs was concluded on 19.12.1005 he had filed the present application, he had also invoked the arbitration on 18^th itself. Therefore, I am of the view that his reply to the interim reliefs cannot be considered to be the first statement on the substance of the disputes to hold that he is not entitled to file this application. The petitioners relied on the decisions of this Board in Hindustan Ferro, Sunair Hotel Limited, and Hind Samachar cases wherein this Board had dismissed the applications filed under Section 8 of the Act on the ground that in the interlocutory affidavits, the respondents therein had dealt with substance of the petition. In Hindustan Ferro case, the respondents participated in the proceeding for over 13 months before filing an application under Section 8. Similarly in Sunair Hotel case, the respondents therein had filed a detailed reply to the petition and not an interim reply, dealing with the substance of the disputes, inter alia mentioning that in view of the arbitration agreement, the disputes could only be adjudicated through the contractual forum. A formal application under Section 8 was filed only after a delay of 5 months. In Hind Samachar case, even though the respondents undertook to file an application under Section 8, they did so only after nearly 9 months, in the mean while, they themselves filing applications for interim reliefs. This Board held that by filing applications for interim, without moving the application under Section 8, the respondents had subjected themselves to the jurisdiction of this Board, In all these cases, in the replies, the respondents had not only specifically mentioned about the arbitration agreement but also contended that the disputes were covered in the said agreement but no formal applications under Section 8 were filed for a long time. On the contrary, in the present case, there is no mention of the arbitration agreement in the interim reply nor any averment that the disputes were covered under the said agreement and the application under Section 8 was filed within a week, that too before the conclusion of the arguments on the interim reliefs. Therefore, applying the decision in Jeshu Patel case, I hold that the interim reply filed by the 2^ndrespondent cannot be considered to be the first statement on the substance of the disputes and as such this application under Section 8 of the Act is maintainable.
17. However, the petitioners have raised various other grounds to seek for dismissal of the application. The grounds are there is no commonalities of the parties, many of the allegations in the petition cannot be traced to the terms of the agreement dated 23.12.1999 read with supplementary agreement dated 15.6.2000, the arbitrator is not capable of granting the prayers sought for in the petition, the company in the affairs of which acts of oppression and mismanagement have been alleged is not a party to the agreements, proceedings under Sections 397/398 of the Companies Act, 1956 cannot be referred to arbitration etc. On these contentions, the 2^ndrespondent has advanced that in the arbitration clause, it is specifically mentioned that any dispute in the affairs of the company would also be subject to arbitration, that Section 8 talks of only subject matter and not of relief, that the main allegation relating to shareholding is directly traceable to the agreements, mere addition of parties to contend that no commonality of parties is unsustainable, even otherwise all the respondents are willing to abide by the terms of the arbitration agreement etc.
18. Before I deal with the above, it is necessary to deal with Article 26 of the Articles of Association which stipulates that if differences between the company and the members in respect of the affairs of the company arise, the same is to be referred to the decision of 2 or more arbitrators. According to Shri Sarkar, since the disputes that have been raised in the petition relate to the affairs of the company, the same should be referred to arbitration. As a matter of fact, both the 1^st and 6^th respondents have claimed locus standi to file these applications under Section 8 of the Act on the basis of this Article. This Article mainly talks of differences between the company and the members or breach of Articles or the Statute. This Article does not cover either allegations of oppression or mismanagement. While disputes could result in allegations, allegations need not be the result of disputes. Shri Sarkar relied on the Decision of Delhi High Court in Gurnir Singh v. Saz International P Ltd 62 CC 197 to suggest that matters covered a petition under Sections 397/398 could be referred to Arbitration if the Article so stipulate. In that case, the parties themselves agreed to go for arbitration. Therefore, notwithstanding the contention of the petitioners that any provision in the Article for referring disputes in the affairs of the company to arbitration is repugnant to the statutory rights of a shareholder to file a petition under Sections 397/398 which is also in violation of Section 9 of the Act, since this Article does not cover allegations of oppression and mismanagement, no reliance can be placed on this Article seeking for referring the matter covered in the petition to arbitration. Likewise, the 1^st and 6^th respondents can also not claim locus standi to file an application under Section 8 of the Act on the strength of this Article. The same ratio would apply to the Arbitration agreement wherein also, it is stated that "any disputes or differences of opinion--in connection with the affairs of the company--". No reference to allegations of oppression or mismanagement in that agreement.
19. I am inclined to agree with the petitioners that for various reasons indicated below the disputes raised in the petition cannot be referred to arbitration. First is the absence of commonality of the parties. Even though it was urged by Shri Sarkar that arbitration agreement covers " the affairs of the company", I find that the company is not a party to the said agreement. In Magotteaux and Limrose cases, the Board has held that if the company is not a party to the arbitration agreement, the matter covered under a petition under Sections 397/398 of the Companies Act cannot be referred to arbitration. Shri Sarkar submitted that all the respondents including the company are willing to abide by the arbitration agreement. In Sukanaya Holdings, the Supreme Court has held that the same cannot be permitted. In this connection, it is necessary to mention that while pointing out that the company is not a party to the arbitration agreement, the petitioners also pointed out that some of the other respondents are not party to the arbitration agreement. As rightly pointed out Shri Sarkar, by adding parties against whom no relief have been sought, reference to arbitration cannot be sought to be scuttled as held by this Board in Air Touch International case.
20. Further, even though the main complaint of the petitioners regarding their shareholding is directly referable/traceable to the arbitration agreement, yet, there are allegations of statutory violations, manipulation of records, misapplication and/or siphoning of funds of the company etc which cannot be traced to the terms of the shareholders' agreement. The petitioners have filed a chart of allegations which, according to them, cannot be traced to the term of the agreements. This has not been contradicted by the respondents, other than stating that "affairs of the company" as in the arbitration agreement and Article 26 would cover all these allegations. In a number of cases, like Sukanaya Holdings and Khandwala Securities cases, it has been held that if the entire subject matter of disputes in the Court do not fall under the purview of arbitration agreement, such disputes cannot be referred to arbitration. In Limrose case, this Board has held that if allegations can be examined without reference to arbitration agreement, then, the same cannot be referred to arbitration. The counsel for the petitioners cited a number of cases to the proposition that matters covered in a petition under Sections 397/398 cannot be referred to arbitration, that arbitrator is not capable of granting reliefs as envisaged by Section 402 of the Act which can be granted only by the Company Law Board etc. with which I do not propose to deal with separately, as even otherwise, I am dismissing this application on the ground that the company is not a party to the arbitration agreement and that all the matters covered in the petition are not covered in the arbitration agreement and many of the allegations can be enquired into without reference to the Arbitration agreement.
21. In fine, for the forgoing reasons, I dismiss all the 3 applications. The respondents will file their replies to the petition by 1.8.2006 and the rejoinder will be filed by 20.8.2006. The petition will be heard on 29^th and 30th August at 10.30 AM.