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ORDER Vimla Yadav, Member
1. In this order I am considering C.A. No. 396/07 filed by the R-3 (Sh. Anandrao Gaekwar) seeking deletion from the array of parties and vacation of Company Law Board's order dated 2.8.2007, C.A.No. 432/07 filed by the R-1(M/s Unique Construction Pvt. Ltd.) and R-2 (Sh. Rajesh Kumar Jain) under Section 8 of the Arbitration and Conciliation Act, 1996 seeking referring of the parties to Arbitration, C.A. No. 433/07 filed by the petitioner seeking impleadment of new parties and C.P. No. 111/07 filed by the petitioner (Sh. Rajender Kumar Tekriwal) alleging certain acts of oppression and mismanagement under Sections 397 and 398 of the Companies Act 1956 (hereinafter referred to as the 'Act').
2. The Respondent No. 1 Company was incorporated as a Private Limited company on 6.10.1989 with the authorized share capital of Rs. 5 lakhs, divided into 5000 shares of Rs. 100 each with Respondent No. 2 and Shri Piyush Dave as Directors. The registered office of the Respondent No. 1 Company is situated at Kunj Rest Cum Plaza 'A' Tower, Palace Road, Vadodara-390001, Gujarat. The main objects for which the company was formed were to undertake and/or direct all type of construction and the maintenance of and to acquire by purchase, lease, exchange, hire or otherwise, lands, properties, buildings and estates, etc. On 4.5.1994 the Respondent No. 1 Company being a developer entered into an Agreement and MOU for development of Commercial Complex at Municipal No. 79. South Tokoganj, Indore (Premises in short) with the father of the R-3 who had perpetual lease of the plot admeasuring 77708 sq. ft. MOU dated 29.4.1997 was entered into between petitioner and the Respondent No. 2 for joint development of the Premises against the payment of a Isum of Rs. 6,06,89,948/- to be paid to Respondent No. 3 for the cost of land and towards development of Commercial Complex in anticipation of permission from R-3. On 18.6.1998 a Tripartite Agreement between Yashwant Entertainment and Investment Pvt. Ltd. and Respondent No. 1 and Respondent No. 3 for development of Premises was entered into through R-2. On 20,6.1998 the share capital of the Respondent No. 1 company was raised to Rs. 6,12,400/- divided into 6124 number of shares of Rs. 100/- each. On 8.7.1998 the petitioner was allotted 3062 shares being 50% of the total shareholding of the R-1. It has been alleged that on 19th November, 2003 the authorized share capital of company was illegally raised from Rs 6,15,000/-(Rupees six lakhs fifteen thousand) to Rs. 9,00,000/- (Rs. Nine lakhs) and on 11th July 2005 share capital was further illegally raised from Rs. 9,00,000/- (Rs. Nine lakhs) to Rs. 25,00,000/- (Rs. Twenty five lakhs) and as on date of filing this petition, the disputed authorized share capital of the Respondent No. 1 Company was Rs. 25,00,000/- (Rs. Twenty five lakhs) divided into 25,000/- (Twenty five thousand) equity shares of Rs. 100/- (Rs. One hundred) each. The undisputed paid up share capital of the company as on date is Rs. 6,12,400/- (Rs. Six lakhs twelve thousand four hundred) equity shares of Rs. 100/--each. The R-2 has, it was alleged, after illegally raising the authorized share capital of the company also illegally allotted 18,876 equity shares of the company to himself and his relatives over a period of time to illegally place the present petitioner into extreme minority. On 24.11.2003 R-2 allotted 2876 shares to Rajesh Chunnilal Jain HUF. On 14.7.2005 R-2 allotted 14000 shares to the same HUF and Shri Rahil Rajesh Jain and on 27.7.2005 R-2 allotted 2000 shares to the same HUF. It is alleged that the shares so issued and allotted by the R-2 to his group in the Respondent No. 1 Company are in gross violation of the provisions of the agreement and memorandum of understanding signed between the petitioner and the Respondent No. 2. Shares have been issued by the Respondent No. 2 in the names of his relatives with the only objective of putting the present petitioner into extreme minority and to deprive him from getting any relief from this Hon'ble Board. The petitioner has sought illegal allotment of these shares to be declared null and void; illegal removal of petitioner, his wife (Smt. Meera Tekriwal) and son (Shri Gaurav Tekriwal) from the directorship of the company as null and void; direction is sought requiring the R-1 company to submit an audited statement of account showing the present state of affairs including income showing cash component on sale and expenditure of the Indore based Yashwant Talkies Project and that the Sale transactions for 50% of the project property at Indore based project at the Yashwant Talkies Indore be declared null and void. The petitioner has withdrawn the prayer at para 8,7 pertaining to the alleged transfer of 1531 shares by the petitioners to one Mr. V. Shukla.
3. Shri D.K. Aggarwal, Sr. Counsel for the R-3 arguing on C.A No. 396/07 contended that the petitioner has joined the applicant as respondent in the subject petition with ulterior intentions and without there being any cause of action. It was contended that the petitioner had prayed for an order against the applicant surreptitiously in as much as it was forwarded in such a manner that the applicant came to know of an ex-parte order on 2.8.2007 against it only subsequently. The petitioner could not have made any prayer against the present applicant and it did not and does not have any locus and/or cause of action against the applicant. In OJ Appeal being OJ Appeal No. 198 of 2007 against Company Law Board's order dated 2.8.2007 the Hon'ble High Court of Gujarat at Ahmedabad vide order dated 29,8.2007 directed the Applicant to file an interlocutory application and reply to the C.P. No. 111/07. Hence, C.A. No. 396/07. It was contended that without the knowledge and consent of the applicant, the R-2 entered into an agreement with the petitioner. By virtue of the agreement dated 4.5.1994 and by the subsequent tripartite agreement dated 18.6.1998, the applicant had not sold or transferred the land in question and/or its title in favour of any one, muchless the petitioner. Very limited right viz development of the subject land and no right other than the rights specified in the said agreement was granted to the R-2 by the applicant. The applicant is not a party to the said agreement dated 4.7.1998 between the petitioner and R-2. Same is not and/or cannot be said to be binding on the applicant. The petitioner had filed Civil Suit No. 19-A/2006 in the Court of Ld. District & Sessions Judge at Indore for declaration that the agreement dated 4.7.98 is binding on the R-2 and the R-3 (the Applicant) and prayer for injunction was also made. The Applicant as well as R-2 appeared in the Court. The District Court by judgment and order dated 20.2,2007 dismissed the suit and refused to grant injunction. The petitioner has filed an appeal in the High Court of Madhya Pradesh at Indore against the order dated 20.2.2007. It was argued that the cursory glance at the relevant agreements would conclusively demonstrate that so far as the disputes between the petitioner and the respondents are concerned, the applicant is neither concerned nor interested in the said disputes, except to the fact and extend that in view of or as a result of their inter-se dispute, the interest of applicant should not be affected in any manner and/or the applicant should not be dragged into any litigation by and between these parties. In the company petition No. 111/07, the applicant has been impleaded without any basis' or justification and despite the fact that the applicant is not concerned with the Respondent No. 1 company and/or in the Board of Directors of the said Respondent No. 1 company as a result of which the applicant is also adversely affected without any basis or justification. It is pertinent that there is no agreement and/or privity of contract between the applicant and the petitioner and there are no relations between the applicant and the petitioner and the petitioner does not have any cause of action against the present applicant for the said company petition or otherwise. In the present case, the applicant is neither a member nor a shareholder nor a director in M/s Unique Construction Pvt. Ltd. and that, therefore, the subject petition is not maintainable against the applicant and the same could not have been preferred against present applicant and no relief against present applicant could have been prayed for and/or granted. Further, it was argued that even otherwise there is no privity of contract between the applicant on one hand and the petitioner on the other hand. In the absence of any privity of contract between the applicant (R-3) and the petitioner, the petitioner does not and cannot have any cause of action against the applicant and/or any locus for any claim against the applicant. In this view of the matter also the petition and/or any of the relief prayed for therein are not maintainable against the applicant and the same could not and ought not have been granted. No relief can be prayed for by the petitioner against the applicant. Interim relief can not be granted and, therefore, the order dated 2.8.07 taking present applicant in its purview is unjustified, erroneous, untenable in law and on facts and without jurisdiction and authority in law. When the subject petition itself is not maintainable against the applicant Sections 397 and/or 398, prayer for any relief against present applicant also would not be maintainable and consequently any order concerning and/or affecting the applicant and/or against the applicant also would not be maintainable. The Company Law Board does not have any jurisdiction.
4. Sh. Aggarwal further argued that the R-3 has filed an affidavit dated 3rd September. He has squarely denied the averments, allegations and submission made in the petition and particularly in paras 6.1 to 6.43 so far as they concern him. The Respondent No. 3 is not concerned with inter se disputes between the petitioner and respondents No. 1 & 2. He is not a party to the alleged Board resolutions dated 27.12.2004, 24.11.2003, 14.07.2005 and 27.7.2005. R-3 is neither a member/shareholder nor a Director in the respondent No. 1 company. There is no question or occasion for any direction against him to submit any audited statement of account of Respondent No. 1 Company. He has no locus standi to submit any audited statement of account either. No relief can be prayed for and or granted against him. In the facts and circumstances the Hon'ble Board would not and does not have any jurisdiction to entertain a petition against him.
5. Further, it was argued that the provisions of Sections 397 and 398 clearly mention that it enables only a member of a company to complain that the affairs of the company are being conducted in a manner prejudicially to public interest or oppressive to any member or members. Reliance was placed on a Division Bench Authority of the High Court of Madras reported as V.M. Rao and Ors. v. Rajeswari Ramakrishnana and Ors. Vol. 61 1987 company cases page 20 The Hon'ble Madras High Court at page 66 held that the oppression complained of must affect a person in his capacity as a member of the company, harsh or unfair treatment in any other capacity i.e. as a director or a creditor is outside the purview of the Section. The R-3 submitted that he is fully covered by this authority and no petition under Sections 397, 398 lies against him. There is no privity of contract between the petitioner and Respondent No. 3. The R-3 submitted that he did not have any dealing or transaction or agreements or contracts with the petitioner. He did not enter into any contract agreement with the petitioner nor did he enter into any business transactions/ dealing with the petitioner particularly in connection with R-2. The petitioner has no locus to present the Petition under Sections 397 and 398 against him. It was argued that the agreement dated 18.6.1998 specifically provides in Clause 5 which appears at page 117 of the paper book that the R-2 company was entitled only to the cash consideration in the formula provided therein and nothing else. Further the R-3 pointed out that the company petition field a Civil Suit No. 19-A/2006 in the Court of learned District and Session Judge at Indore for declaration that the agreement dated 4.7.1998 was binding inter alia on Respondent No. 2 Company and R-3. The learned District Judge vide judgment and order dated 20.2.2007 dismissed the suit and refused to grant the injunction. The petitioner has filed an appeal in the High Court of Madhya Pradesh against the said judgment. It is argued by the petitioner that R-3 will be covered by Sections 397 and 398 because the word "affairs of company" as appearing in the Sections will include the contracts with the company. The only agreement which theR-3 has with the respondent No. 1 company is agreement dated 18.6.98 and none else. There is no allegation in the petition that the R-3 and any member of the company has operated said agreements against the public interest or against the interest of the Respondent No. 1 company and in any manner oppressive to the petitioner or his group. The arguments thus have no substance. It is significant that petitioner has not responded to various arguments by the R-3. Based on the agreements the R-3 had with Respondent No. 1 company, no relief or interim relief can be granted against R-3. It is further submitted that the interim relief can be granted only when the final relief can be granted against the R-3. As submitted above, no relief can be granted against R-3. Therefore, no interim relief could have been granted or could be granted.
6. Sh. S.N. Mookerjee, Senior Counsel for the petitioner, argued that as to why the R3 is a necessary and relevant party in this petition. It was contended that the R-3 is important and necessary since the benefit of the project of the company is provided for by the Respondent No. 1 to the Respondent No. 3. The whole petition has averments and references of Respondent No. 3 in addition to other respondents at para. 6.1, 6.2, 6.4, 6.5, 6.6, 6.7, 6.11, 6.13, 6.15, 6.16, 6.21, 6.22, 6.28, 6.30, 6.37-6.38. It is not necessary for a respondent to be a shareholder, director as there is nothing in Sections 397/398 of the Act which indicates that a person who is not a shareholder cannot be a party in proceedings under Sections 397/398. The only criteria to become party under Sections 397/398 proceedings is to have connection with the affairs of the company. For his contentions, he placed reliance on the ratio of judgment cited at (1964) 1 All England Reporter -at, 561, 565 and 568. Real affair is, it was argued, that the Respondent No. 3 is a beneficiary of the development of the property of the company when there is dispute about the development with the petitioners. It was argued that contracts constitute the affairs of the Company 19861 R-6549@552, 553 was referred. Further, under 402 relief, the contracts can also be set right [Section 402(e), 407]. It was argued that this Hon'ble Board is not confined to the relief as asked for. May grant any further relief as may be deemed fit. AIR 1976 Bom 237 Bennet Colman refers.
7. Further, Shri Mookerjee argued that the R-3 is a necessary party as an owner of the land in respect of which the development agreement and MOU dated 4.7.1998 were signed. Therefore, it was specifically denied that the R-3 is liable to be discharged from the present proceedings. The R-3 had filed an appeal before the Hon'ble High Court at Ahmedabad being Appeal No. 198 of 2007. The R-3 had also filed an application under Section 24 of CPC for transfer of Suit No. 89-A/2006 from the court of 4th Additional Judge, Indore to some other Court. It was pointed out that the LD District Judge, Indore while deciding the said application had held that the dispute relating to construction of multiplex complex on the land owned by Yashwant Talkies is between Unique Construction (R-1), Anandrao Gaekwar (R-3), and the petitioner and R-2. In view of the above findings the R-3 cannot take a stand that he is not related to the present dispute. Therefore, he cannot be discharged from the present proceedings. It was pointed out that the parties to the Tripartite Agreement dated 18.6.1998 are registering the purchasers of developed area as per the agreement and in case he is not restrained from selling the same the purpose of the petition presented before the Hon'ble Board will be defeated. The petitioner had given cheque for an amount of Rs. 5 lakhs to the applicant drawn on Karur Vyasya Bank, Indore which was directly credited to the applicant's bank account. The said payment was made as per agreement dated 4.7.1998 and, therefore, the applicant cannot deny his involvement and also cannot deny that there is no privity of contract between the applicant and the petitioner. The OJ Appeal No. 198 of 2007 has been dismissed by the Hon'ble High Court of Gujarat vide order dated 29.8.2007 and the Hon'ble High Court had refused to pass any order in the said appeal in limine. Merely because the applicant did not sign as a party in the agreement dated 4.7.1998, the applicant cannot seek discharge from the present proceedings. The petition against the applicant is correct in view of his involvement in various agreements and as owner of the land in respect of which the development agreement and MOU dated 4.7.1998 were signed.
8. I have considered the pleadings and the arguments of the parties which were heard in compliance with the order dated 29.8.2007 of the Hon'ble High Court of Gujarat at Ahmedabad. However, the parties were unable to conclude their arguments within the scheduled time. To do full justice in the matter reasonable extended time had to be allowed.
9. The R-3 namely Sh. Anandrao Gaekwar, who has also filed reply to C.P.No. 111/07 in pursuance to the Hon'ble High Court's order dated 29.8.2007 has objected to his impleadment in the CP by way of Company Application No. 396/07. It was argued that there is no Agreement/MOU between R-3 and the petitioner; R-3 is not a shareholder/Member/Director in R-1 Company; petitioner's Civil Suit in this matter for declaration and injunction already stands dismissed, however, appeal in the Hon'ble High Court of Madhya Pradesh, Indore is pending; Company Law Board's interim order dated 2.8,2007 was ex-parte, without notice, without hearing, without jurisdiction; the C.P. No. 111/07 is not maintainable against R-3 and hence no relief/prayer can be sought and allowed against R-3 the petition being non-maintainable, the petitioner has argued that the R-3 is a necessary party: (i) in view of Tripartite Agreement dated 18.6,98, (ii) Development Agreement is qua land which is on perpetual lease with R-3, (iii) the observations of the Additional District Judge contained in Civil Suit No. 19-A/2006 clearly hold that the dispute relates to R-1, R-2, R-3 and the petitioner, (iv)the petitioner has paid a sum of Rs. 5 lakhs to the applicant (R-3) vide the cheque drawn on Karur Vyasya Bank, Indore which was directly credited to R-3's account; (v) merely because R-3 did not sign the Agreement dated 4.7.1998 would not keep him out of the dispute, the arguments on privity of contract and locus are not tenable. Considering the facts and circumstances of the case and in view of the uncontroverted contentions of the petitioner, I find no justification for allowing the R-3's Application for non-impleadment. The matter relates toR-3 as well. The allegations contained in C.P No. 111/07 cannot be adjudicated upon keeping R-3 out of the array of the parties. The petitioner's agreement with R-2 is also for the benefit of R-3. Then, R-3 has agreement with R-1. Any person who has I a contract with the company is concerned with the affairs of the company. Any person who is concerned with the affairs of the company can be a party, Since the matter of sharing of the development and construction is on the land over which R-3 has perpetual lease rights, without impleading R-3 in the proceedings in C.P. No. 111/07 no effective and fair adjudication can be done in his absence. I, therefore, hold that R-3 is a necessary party in these proceedings. He has been rightly impleaded. And since the R-3 has already filed reply to the C.P. the same and the arguments of the counsel for the R-3 on merits are also considered.
10. The petitioner's CA No. 433/07 seeking amendment to the Memo of parties is hereby dismissed as not pressed.
11. Now, coming to the R-1 and R-2's recent Company Application No 432/07 under Section 8 of the Arbitration and Conciliation Act, 1996 filed on 28.9.2007, to remove defect in their plea that matter be referred to the Arbitration, to which the petitioner has objected as the applicants have already filed their reply to the C.P. No. 111/07 and thus having submitted to the jurisdiction of the Company Law Board, cannot now put the clock back and claim that the Company Law Board has no jurisdiction in the matter, I find that the Applicants while replying to C.P. No. 111/07, had taken it as their first preliminary objection. Dr. A.M. Singhvi, counsel for the respondents placed reliance on the Apex Court's decision in P. Anand Gajapathi Raju and Ors. v. P.V.G. Raju (Died) and Ors. wherein certain preconditions have been laid down before the Court can exercise its powers under Section 8 and these preconditions are that:
(1) there is an arbitration agreement; (2)a party to the agreement brings an action in the Court against the other party; (3) subject matter of the action is the same as the; subject matter of the arbitration agreement; (4) the other party moves the Court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. Further, it was emphasized that the Hon'ble Supreme Court even went to the extent of holding that "The language of Section 8 is peremptory. It is therefore, obligatory for the Court to refer the parties to arbitration in terms of their arbitration agreement. Nothing remains to be decided in the original action or the appeal arising therefrom." This proposition, it was contended, has been followed by the Hon'ble Supreme Court in Hindustan Petroleum Cop. Ltd. v. Pinkcity Midway Petroleum Civil Appeal No. 5156 of 2003 and in more recently in Rashtriya Ispat Nigam Limited and Anr. v. Verma Transport Co. . Further, the learned Counsel placed reliance on various petitions decided by the CLB wherein matters have been referred to arbitration in the past when all the conditions as referred to in Re: P. Anand Gajapathi Raju had been fulfilled i.e., Naveen Kedia and Ors. v. Chennai Power Generation Ltd. and Ors. (1998) 4 Comp LJ 128 (CLB); Escorts Finance Ltd. v. G. R. Solvents and allied Industries Ltd. Ors. (1999) 96 Comp Cas 323 (CLB) and Pinaki Das Gupta v. Maadhyam Advertising (P) Ltd. (2003) 114 CC 346. It was argued that the Company Law Board has no jurisdiction in this matter as pointed out in the first preliminary objection contained in reply and now also by way of Application under Section 8 of the Arbitration and Conciliation Act, 1996. It was contended that the plea that it is an Arbitration matter has already been taken. It has been taken at the threshold. It has been taken as a preliminary objection which must be decided first. It is a severable objection. The Company Law Board has no jurisdiction to entertain and adjudicate the present-petition under Sections 397, 398 as there is Arbitration Agreement between the parties. All the rights of petitioner flow and originate from MOU/Agreement dated 4.7.1998 and the same MOU/Agreement dated 4.7.1998 has Arbitration Clause and also the prayers in the present petition can be decided by Arbitrator as per Agreement/ MOU. It was pointed out that R-1 and 2 did move Section 8A Application before third Additional District Judge Indore on 25.11.2006 praying for matter to be decided by Arbitrator as there is Arbitration agreement. The Competent Court vide its Order dated 20.2.2007 vide Civil Suit No. 19A/2006 has been pleased to allow the application filed by the R-1 and 2 under Section 8 of the Arbitration and Conciliation Act and refer the present controversy to an Arbitrator. R-1 and 2 by way of abundant precaution, without prejudice and wholly in the alternative to the argument that preliminary objection raised by R-1 and 2 regarding Arbitration is sufficient for Hon'ble Company Law Board to refer petitioner and R-1 and 2 to arbitration. The present petition by petitioner is only camouflaged into a 397, 398 petition. All prayers in the petition can be decided by an Arbitrator. It was argued that the principal matter originates from MOU only. The controversy sought to be raised in the present petition has originated and emanated from the agreements dated 4th July 1998 & MOU dated 4.7.1998, agreements which contain the arbitration clause. Thus as per Sections 5 & 8 of the Arbitration and Conciliation Act, 1996, the Hon'ble Company Law Board has no jurisdiction to entertain the present petition. In fact the different averments and stipulations referred in the MOUs & Agreement, partakes the form of Partnership Agreement in different reference under the Partnership Act and, therefore, the partnership referred to in Annexure P-8, P-9, P-10 being non-registered P-8, P-9 are unenforceable.
12. Dr. Singhvi further argued that the preconditions mentioned in the case of P. Anand Gajapathi Raju and Ors. (Supra) having been fulfilled in the present matter, it is now obligatory on the Company Law Board to refer the parties to Arbitration in terms of their obligation. The existence of Arbitration Agreement is not denied. The action has been brought before the Company Law Board against the respondents by way of petition under Sections 397/398 of the Act. The subject matter of the petition is the same as the subject matter of the arbitration agreement. And now there is an application under Section 8 of the Arbitration and Conciliation Act. Raising this issue earlier by way of preliminary objections in the reply to the CP does not, in any manner, dilute the contentions of the respondents in this regard.
13. Sh. S.N. Mookherjee Counsel for the petitioner responding to the first preliminary objection of the R-1 & 2 argued that the subject matter of a petition under Sections 397 and 398 of the Act cannot be referred to arbitration. Relying on the judgments in the cases cited at 47, Company cases 92 at 113 to 118, 120, 121; 48 Company Cases 312 at 318 to 320; 50 Company cases 771 at 781 to 785, he argued that the provisions contained in Sections 397 to 409 of the Act constitute a Code by themselves and are not subject to other provisions of the Act; the CLB has wide powers under Section 402 of the Act including the power to give directions contrary to other provisions in the Act; the only limitation on the power that CLB could exercise under Section 408 of the Act is that there must be a nexus between the complaint made and the reliefs granted. Further, relying on the cases cited at 47 Company Cases 276 at 277, 278; 47 Company Cases 279 at 280 to 282; 58 Company Cases 113 at 120; AIR 1976 Bombay 237 at para 5 and 6 pages 240, 241; 1999(2) CLJ 349 ; 1993 (2)SCC 507 at 519, 521; AIR 1999 SC 2354 at paras 4.5. page 2355/ 1999 (5)SCC 688 at Paras 4 & 5, pages 689, 690; 2004(2) Arbitration Law Reporter 241 at paras 4,6 page 260, paras 56 to 62, pages 264 to 268 it was argued that the statutory provisions contained in Sections 397, 398, 402 and 403 of the Act confer a statutory right to shareholders and can only be invoked before the Company Law Board; Under Sections 397 and 398 of the Act, the claim to relief rests not on any contract but on statutory right; arbitrator has not been vested with any jurisdiction to entertain proceedings under Sections 397 and 398 of the Act; arbitrator cannot grant relief of the nature specified in Sections 402 or 403 of the Act; the powers conferred by Sections 397 to 402 of the Act cannot be taken away by agreement whether contained in the Articles or otherwise; the said provisions are an alternative to winding up and deal with public interest, the representative cause of shareholders and derivative cause of company; the arbitration agreement to the extent that the same is contrary to the provisions of the Act are void and/or in any event unenforceable.
14. Replying to the preliminary objections of R-1 & 2 on maintainability, Shri Mookerjee reiterated that proceedings under Sections 397 and 398 of the Act cannot be referred to arbitration. Further, it was contended that a matter cannot be referred to arbitration without an application under Section 8 of the Arbitration Act (Sukanya's case refers); an application under Section 8 of the Arbitration Act should be made before the first statement as to the substance of the dispute which is not the case out here (2004(2) Arbit. LR 241 Hind Samachar and also Supreme Court Order refers); having accepted High Court's order which does not provide for any application by Respondent No. 2 and filing reply in details leaves no scope to adjudicate on arbitration application. On consideration of the pleadings and the arguments of the parties with respect to the Application No. 432/07 filed under Section 8 of the Arbitration Act and the first preliminary objection of the respondents, I find no justification to allow the application and refer the parties to arbitration. There is no proper application under Section 8 of the Arbitration Act fulfilling mandatory requirements of Section 8. The application with requisite annexures must have been filed not later than submitting their first statement on the substance of the dispute. Counter Affidavit to the CP has already been filed. The application has been filed now to make good the default after having argued the matter. Even otherwise, assuming that the Application is proper, on consideration of the facts of the case and in view of the legal position, the respondents have failed to make their case for reference to arbitration. The petitioner has successfully controverted the respondents' contentions. I find that the petitioner's contentions are tenable. There is no provision for arbitration in case of disputes between the company and the petitioners. In Sukanaya Holdings Pvt. Ltd. v. Jayash H. Pandeya Supreme Court has observed that there is no provision in the Act as to what is going to be done in a case where some parties to the suit are not parties to the arbitration agreement. This being the observation of the Supreme Court, this Board has to only examine whether all the parties to the petition as a whole could be referred to arbitration. In the present case there is no commonality of parties, they cannot be referred to arbitration. In Sukanaya Holdings, it has been very clearly held that subject matter before the judicial authority cannot be bifurcated as "a matter" as specified in Section 8 indicates entire subject matter of the suit. In SBP and Co. v. Patel Engineering Ltd. 2005 8 SCC 618, the Constitution Bench of the Supreme Court has held that when an application is filed under Section 8 of the Act, judicial authority is entitled to, has to and is bound to decide the jurisdictional issue raised before it before making or declining to make a reference to arbitration. In other words, it has to decide whether there is a valid agreement and whether the dispute that is sought to be raised before it is covered by arbitration clause. In Gautum Kapur v. Limrose Engineering Manu/CL/0123/2004, this Board has held that the test to determine as to whether the matter in a petition under Sections 397 & 398 is to be relegated to arbitration or not, one has to examine whether the allegations of oppression/mismanagement contained therein can be adjudicated without reference to the terms of the arbitration agreement. In the present case, this Board can examine the allegations purely on the basis of the Articles. If it can be, then the question of referring the matter to arbitration does not arise even if assuming that there is an arbitration agreement and the agreement covers the same matter. In the present case though there is arbitration agreement, the matter relates to oppression and mismanagement directly relating to the rights of or benefit to shareholders in their capacity as members of the company arising out of the provisions of the Act, Articles or on equitable grounds. Assuming that the matters are covered under the arbitration agreement yet, since the same is covered under the Articles also, this Board can determine the allegations only with reference to the Articles and without recourse to the arbitration agreement. In Sudershan Chopra v. Co. Law Board 2004 (2) ARB. LR 241, the Punjab & Haryana High Court has held that all the parties in the suit should be before the arbitrator. In V.B. Rangarajan v. V.B. Gopalakrishan , the Supreme Court has held that the Articles have primacy, over private agreements and in the present case the petitioner is relying on the Articles. It is to be noted that the provisions of Sections 397/398 can be invoked only if the disputes, even among the shareholders, or allegations against each other, relate to the affairs of a company. Such disputes/allegations in the affairs of a company resulting in oppression or mismanagement can never be a subject matter of a suit. In the present case, composition of the Board of Directors and allotment of shares is in the affairs of the company. Further, every act of the Board is in the affairs of the company. Grievances of the petitioner fall squarely in the affairs of the company. Examining the respondents' claim for reference to arbitration on the touchstone of the tests applied by the Company Law Board, I find that they pass only the first test that there is Arbitration Agreement. But there is no commonality of parties. Entire subject matter of the petition cannot be referred to the Arbitrator specifically the statutory rights of allotment of shares and with reference to directorship, etc. not fettered by contract in any manner. Hence, C.A. No. 432/07 cannot be allowed.
15. In view of the finding that this matter cannot be referred to Arbitration, I have no option but to decide the matter on merits. Before considering the matter on merits, the preliminary objections need to be examined and considered. The respondents have drawn my attention to the conduct of the petitioner by referring to the averments in the petition. It has been contended that the petitioner has falsely, malafidely and mischievously stated in the petition that the shares have been transferred to Mr. V.P. Shukla whereas he on his own motion and discretion transferred his 1531 shares to Shri Durgesh Shukla and Sanjay Shukla on 23.12.2002 at a premium, the petition is liable to be dismissed on this ground alone. Further, it was pointed out that the petitioner in para 7 of the petition has made a misstatement as though the Civil Suit in Indore Court has been filed only for injunction whereas it was both for declaration and injunction. Furthermore, by deliberately and mischievously leaving a blank after "Hon'ble ." the petitioner has concealed the fact that the same relief in the First Appeal No. 381/07 is pending adjudication before the Hon'ble High Court M.P. at Indore Bench. Relying on the judgment cited at in the case of S. Harnam Singh v. The State (Del. Admn.) Dr. Singhvi contended that the petitioner was practicing "suggestio falsi" when he knew it to be false. Regarding suppression of information from the Company Law Board, the counsel further relied on the judgment cited at contending that the petition deserved to be dismissed forthwith with exemplary cost. It was pointed out that the several cases under Section 138 Negotiable Instrument Act were pending against the petitioner in the Court of Hon'ble Judicial Magistrate, Baroda for dishonour of cheques given by him in consideration of giving 50% shares capital of Respondent No. 1 Company as per the MOU dated 4.7.1998. Further, it was argued that the petitioner cannot be permitted to do forum shopping by pursuing parallel proceedings which are barred by res-judicata as per the provisions of Section 111 of the CPC. Further, it was argued that the petitioners do not have necessary qualification under Section 399 of the Act to be eligible to apply under Sections 397/398 of the Act as 1531 equity shares i.e 25 % on his own violation and discretion stand transferred on 23.12.2002. It was pointed out that the petitioner's shareholding of 25 % as on 23.12.2002 has become 6.12% of the total subscribed and paid up capital at the time of filing the present petition which is less than 10% as required under Section 399 of the Act. My attention was further drawn to the preliminary objection with respect to delay in filing this petition.
16. Responding to the respondents' preliminary objections Sh. Mookherjee contended that there are no parallel proceedings. Relief sought in the petition, is different; there is no decision on suit on merits. It is admitted position that only notice has been issued in appeal in appellate court and matter is still pending. However, there is no gain since here the matter is under Sections 397/398 of the Companies Act and in the case before the Hon'ble High Court no such relief has been asked for, subject matter is different as the petitioner in the present petition is asking for the restoration of the shareholding by declaring the transfer and allotment null and void and also the removal of the petitioner and his group as directors as-null and void. Shri Mookherjee argued that by not giving full fact about the pendency of first appeal in the MP High Court and using the word 'injunction' in place of declaration and injunction' not much importance can be given to the respondents arguments as no advantage is sought to be derived by such inadvertence. Further, it was argued that reduction of shareholding has permanent effect, it is continuous oppression hence the argument regarding delay in filing this petition is wholly irrelevant. Further, it was pointed out that 25% shareholding of the petitioner is an admitted position, further decrease has been challenged, the petition is maintainable under Sections 397/398, the petitioner has necessary qualification under Section 399 of the Act.
17. As regards the respondents' next preliminary objection regarding suppression of pendency of first appeal in the High Court and other allegations in this regard, I find nothing turns on this since no relief/advantage is sought to be gained by this. Further, the reliefs claimed in the petition are different from the relief sought in other proceedings. Furthermore, reduction of shareholding being a continuous act of oppression delay has to be examined with reference to latches only. As regards the objection on maintainability of this petition in view of the necessary qualification under Section 399 of the Act, it is correct that in order to maintain a petition under Sections 397/398 the petitioner should hold either 10% or more shares of subscribed capital or should constitute 10% or more of total members in the company. Percentage based on share capital is before issue of further shares. In case, the petitioner's share holding is reduced below 10% on account of further issue of shares, the petition under Section 399 would be maintainable. An applicant will not become ineligible by reason of increase in the number of shareholders and issue of shares by a company when such issue of shares and admission of additional members are among the cause of action. The preliminary objections raised in the present petition are not tenable. These do not justify dismissing the petition at the threshold itself from the equitable jurisdiction of the Company Law Board.
18. Sh. Mookherjee arguing the petitioner's case on merits pointed out that it is an admitted position that no notices were given to the petitioner's group from removal of the directorship as well as transfer and allotment. No notice shown, no proof of dispatch has been adduced. Further, there are no notices of Board of Directors or general meeting regarding increase of shareholding, no notice of board meeting. Reliance was placed on the ratio of the cases of Clemens v. Clemens (1976) 2 AIR 268; there was no letter of offer Dale v. Carrington (2005) 21 SCC 212 and Ruby (2006) 7 SCC refers. It was contended that there was no need for funds which stands established. Allotment has been done at par. Further, it was pointed out that transfer to Shukla was without revalidation of the transfer deed. The Annual return filed until 2005 shows the petitioner as holder of 50% whereas the transfer deed was given by the Petitioner in 2002. The said transfer to Shukla is in violation of Articles 4, 8, 9 & 11 of the Articles of Associations of the Company.
19. Further, rejoining on merits of the case, it was argued that the Respondents have not answered anything on allotment of shares which reduces the petitioner's shareholding from 25% to the present holding of 6%. Also no evidence for the removal has been produced. Even at the time of argument no evidence has been shown as to how the allotment has been made. There is no reply as to why shares were sold to Shukla in the year 2002 whereas in the annual returns of the company for continuously in three annual returns from 2002 to 2005 this was shareholdings of the petitioner's group which clearly demonstrate that these shares were to be transferred to the petitioners group. It was pointed out that the facts of this transaction are that in the interest of the project, 25% shares were transferred to V.P. Shukla group in the interest of company which was to be transferred back once the permission was granted for the project. However, respondent No. 2 at this stage played fraud, which is writ large on the face of it as the shares were continuously shown, in the annual returns of the company, he bought shares from Shukla group with the view to reduce petitioner, who was 50% partner to minority. It is also illogical to say that shares of Shukla group were bought for mere Rs. 159200/- against an amount invested by petitioner group of approximately 1.88 crores. It is obvious that 25% cannot be transferred by petitioner for Rs. 153100/- being value of the shares as pleaded that this amount was paid by Shukla group also as per the receipt produced by the respondent. It was argued that these shares were transferred back from petitioners to Shukla Group in Company's registers after buying them on 3/6/2005 and that was the reason that it kept on showing the shares in the name of the petitioner for further period of the three years in the annual returns of the company. Regarding arguments of the respondents pertaining to the petitioner giving up claim on shares of Shukla group, the petitioner has transferred shares to Shukla group but he has objection on transfer of the same to R-2. The transfer was one in the interest of the company and, therefore, the plea for restoring it back to the petitioner as the same was in violation of the Articles 4,8,9, & 11 and against the understanding. Further, it was pointed out that after only this transfer from Shukla Group to the Respondent group, petitioner and his representatives were removed from Board including resignation of Mr. Shukla since he had no connection with the company before the petitioner entered into the MOU with the respondent 1 and 2. Therefore, as per arrangement, the petitioner was entitled to have four directors and respondents three directors. This was the reason why all board meetings were shown of earlier date and the form 32 was filed after lapse of 10 months in October though the date of the form is 27.12.2004. Thus the date on the form filed is after the shares were bought from VP Shukla group. All this shows how the respondent has manipulated and fabricated all records of the company and its documents.
20. Further, it was pointed out that the payment of Rs. One crore at the signing of the Agreement which was a precondition for execution of MOU dated 29.4.1997 is an admitted position. Also that the admission of payment Rs. 82 lacs in cash and 18 lacs by way of the cheque which cannot be disputed now since it is paid and accepted in the agreement which has been accepted by the respondent and not even one correspondence have taken place in 8 years regarding non payment of this money. It is very obvious that no one will give 50% shares in the company without taking any money at all only on the basis of advance cheques. Also this money was paid in two instalments one at the time of signing of the first agreement on 29.4.1997 by an amount of 25 lacs and finally on 4.7.98 by paying 1.00 crores including earlier 25 lacs which substantially proves the genuiness of the transaction done normally.
21. Regarding six cheques of 16 lacs, it was pointed out that these cheques were given as surety of payment but when payment to the extent of 88 lacs was already paid they were to be returned back to the petitioner and which is where the R-2 took benefit of the situation and presented the cheques to create dispute in the whole matter. All these cheques deposited were given blank and the R-2 has filled his own name instead of company's name in the cheques and presented them in the bank contrary to the understanding. All above amount of Rs. 1.88 lacs was brought by the petitioner was towards the premium of the additional shares issued by the company which has been admitted by the respondents in their reply that cheques were issued towards the premium but the payment made to the extent of Rs. 1.88 crore was not shown as premium deposited in the books of the company by Respondent No. 1 and Respondent No. 2. As the petitioner took objection to the reliance placed by the respondent on reply to the rejoinder filed without seeking leave of the Court, the same was treated as not on record.
22. Sh. Vivek Dalai, counsel for the respondents argued that the removal of the petitioners' group from directorship and increase in share capital and allotment of shares was as per the provisions of the Companies Act, 1956 under due intimation to the Registrar of Companies and the petitioner. It was argued that the petitioner Mr. Rajendra Kumar Tekriwal had on his own motion and discretion transferred his 1531 shares to Mr. Durgesh Shukla and Sanjay Shukla on 23.12.2002 at a premium. Petitioner has falsely, malafidely and mischievously stated, in his petition that the shares have been transferred to Mr. V.P. Shukla which is absolutely false. It was argued that in case of dilution in shareholding from 3062 equity shares to 1531 equity shares, which has been committed by the holder of shares (petitioner) himself on 23.12.2002 thereby putting him into the minority position, the provisions of oppression and mismanagement as contemplated in Sections 397 and 398 of the Companies Act, 1956, can hot be resorted to by the petitioner. Further, it was argued that the increase of authorized share capital of the Respondent No. 1 company from 6.15 lakhs to 9.00 lakhs on 19.11.2003 and from 9.00 lakhs to 25.00 lakhs on 11.7.2005 has been effected in terms of Sections 16, 94, 31 of Companies Act, 1956 and necessary submissions in office of Registrar of Companies, Gujarat Ahmedabad has been effected and kept open on email line for inspection by any member of the public including the petitioner. The increase in the subscribed and paid up share capital from time to time in terms of Sections 69 and 75 of the Companies Act, 1956 has been completed strictly in accordance with the law. It was pointed out that the petitioner had a right under Section 234 of the Companies Act to challenge the act of increase of share capital of the Respondent No. 1 Company which was filed in Proforma Form No. 5. Dr. Singhvi argued that all the prayers relate to quashing of allotment. There is no prayer that increase in the Authorised Capital is bad. Allotment, it was argued, is a consequence. What is challenged is the consequence, not the action.
23. Regarding vacation of office of director, it was argued by Shri Dalai, that due to the absence of the petitioner and Mrs. Meera Tekriwal and Shri Gaurav from more than three meetings of Board of Directors held on 30.3.2004, 26.6.2004 and 9.9.2004, the absence of the petitioner, Mrs. Meera Tekriwal and Gaurav Tekriwal was noted and by invoking the provisions of Section 283(1)(g) of the Companies Act, 1956, the petitioner, Mrs. Meera Tekriwal and Gaurav Tekriwal ceased to be directors of Respondent No. 1 Company. Mrs. Meera Tekriwal and Gaurav Tekriwal are not even shareholders of Respondent No. 1 Company. Further, the petitioner has committed offence of cheating, forgery by opening current account in Karur Vysya Bank, A.B. Road, Indore vide Account No. 618 (New No. 230111000002641) dated 4.2.2002 in the name of Respondent No. 1 company without any authorization of Board of Directors of Respondent No. 1 Company and operating the above said account by depositing a sum of Rs. 47,53,000/- in the said account of Respondent No. 1 Company, the aforesaid amount was shown to be deposited in the name of Mr. Vishnu Prasad Shukla (Rs. 22,68,000) and Rajendra Kumar Tekriwal (Rs.24,85,000). In order to file FIR against petitioner for opening aforesaid forged account with the help of forged documents it was decided to make payments in favour of creditors of Respondent No. 1 Company (out of sum of Rs. 63,53,000/-) and thus payment of Rs. 37,25,000/-) was made to M/s Yeshwant Entertainment and Investment Pvt. Ltd. from the aforesaid account of Respondent No. 1, and a further cheque of Rs. 10,23,000/- was issued to Indore Nagar Nigam. Thus the Respondent No. 1 company credited a sum of Rs. 22,68,000/- in the account of Shri. V.P. Shukla and a sum of Rs. 40,85,000/- in the account of Rajendra Kumar Tekriwal. The said bank account opened by petitioner falls squarely in the definition of forgery, cheating as defined in IPC, this fact was suppressed in submitting the annexure P-12 by the petitioner. Hence, this petition is liable to be dismissed on the ground that the petitioner is not entitled to approach this Hon'ble Court being barred by the provisions of Companies Act, 1956 as well as the principles of equity.
24. Now, considering this petition on merits in view of the pleadings and the documents annexed, the arguments and the legal propositions ably brought to my notice by the learned Counsels for the parties, I find that the respondents have not been able to controvert the petitioner's allegations regarding reduction in shareholding from admitted shareholding of 25% to 6.12%. It has been correctly contended by the respondents that the petitioner held only 25% shares before further issue of shares by the R-1 on 24.11.2003, 14.7.2005 and 27.7.2005 since transfer of 1531 shares being 50% of the petitioner's shareholding for consideration on 23.12.2002, on his own volition discretion is not only in violation of the terms of the MOU and Agreement disentitling the petitioner from any relief, but such act of dilution in shareholding committed by the holder of shares himself thereby putting him into minority position, the provisions of oppression and mismanagement as contemplated under Sections 397 and 398 of the Act cannot be resorted to, he cannot be allowed to take advantage of his own wrong. The petitioner has failed to meet this contention that reduction in shareholding from 50% to 25% is due to his own act and choice. As regards further reduction in his shareholding from 25 % to 6.12%, I find that the respondents have no answer except that it has been done as per the provisions of the Act and Articles and that the Registrar of Companies has been duly informed. But the counsel for the petitioner has drawn my attention to the Articles, which have been violated as pointed out above, and this contention regarding illegal allotment without notice, without offer remains uncontraverted. The counsel for the petitioner has rightly placed reliance on the ratio of the judgment in the case of Dale & Carrington Investment (P) Ltd. cited at (2005) SCC 212 specifically para 30 to support his contention that the allotment of additional shares to R-2 group himself was an act of oppression. Further, the contention regarding losing "Negative Control Right" Clemens v. Clemens Bros Ltd. and Anr.  2 All ER 268 also remains uncontroverted. In this view of the matter, I have no option but to set aside allotment of shares made on 24.11.2003, 14.7.2005 and 27.7.2005 totalling to 18876 (2876, 14000 and 2000), the allotment is declared null and void and status quo ante is restored.
25. Coming to the allegation regarding removal of the petitioner group from directorship without notice, I find that this company not being in the nature of quasi-partnership, (though there are agreements and MOU which partake the form of Partnership Agreement, the partnership referred to being unregistered, the agreements/ MOUs are claimed to be unenforceable), as a principle, directorial complaints cannot be a ground in a petition under Sections 397/398 as the complaints in such a petition should be relating to the rights qua a member. It is only in case of family companies or companies in the nature of partnership, depending on the facts of the case, directorial complaints have been adjudicated by this Board in Sections 397/398 proceedings. In this view of the matter, I find no justification to allow the petitioner's prayer in this regard. The petitioner's other prayers regarding sale transactions of 50% of the project property as well as his prayer regarding audited statement of accounts of the project property being the matter in issue of the MOU/Agreement before the Arbitrator cannot be adjudicated upon by the Company Law Board.
26. With the above directions, the Company Petition and the Company Applications are disposed of. All interim orders stand vacated. No order as to cost.