Sumitomo
Corporation Vs. CDC Financial Services (Mauritius) Ltd. & Ors [2008] Insc 274 (22 February 2008)
Tarun
Chatterjee & P. Sathasivam
CIVIL
APPEAL NO. 1496 OF 2008 (Arising out of SLP (C) No.8228 OF 2007) P. Sathasivam,
J.
1)
Leave granted.
2) This
appeal is directed against the judgment and order dated 21.02.2007 passed by
the High Court of Delhi in F.A.O. No. 305 of 2006 by which the High Court
dismissed the appeal filed by the appellant herein for lack of territorial
jurisdiction holding that Section 10(1)(a) of the Companies Act, 1956 will take
precedence over Section 50 of the Arbitration and Conciliation Act, 1996.
3)
Brief facts, in a nutshell, are:
On
05.10.1984, a Joint Venture Agreement was entered into between Sumitomo
Corporation (appellant herein), Punjab Tractors Pvt. Ltd. (respondent No.5
herein) and Swaraj Mazda Limited (Respondent No.6 herein) comprehensively
specifying the respective rights and obligations of the parties including the
management control of the affairs of the company. The Joint Venture Agreement,
which is filed as Annexure P-1, contains in Article XVI, arbitration agreement
between the parties.
In the
beginning of 2005, the shareholding pattern of the appellant - Sumitomo
Corporation ( in short "SC") and respondent No. 5 - Punjab Tractors
Pvt. Ltd. ( in short "PTL") & respondent No. 6 - Swaraj Mazda
Ltd. (in short "SML") was :
respondent
No.5 PTL - 29.04%, respondent No.6 SML 15.66%, appellant SC 10.44% and
respondent No.1 - CDC Financial Services (Mauritius) Ltd., respondent No.2 -
South Asia Regional Fund, Mauritius, respondent No.3 - CDC-PTL
Holdings
Ltd. and respondent No.4 - ACTIS Agri Business Ltd. 17.45%.
On 30.06.2005, an agreement (Annexure P-2) was entered into between PTL, SC and SML for
purchase by the SC, appellant herein, of 1,573,000 shares of SML from PTL.
Thus,
the shareholding of SC increased to 41% while the holding of PTL came down to
14%. The said agreement also contains arbitration agreement in Article II,
Section 2.03.
In
May-June, 2006, disputes arose between the parties regarding rights of the
parties envisaged in Section 4.1 and other provisions of the Joint Venture
Agreement. PTL sought to nominate four Directors on the Board of SML and the
same was disallowed in view of Section 4.1 of the Joint Venture Agreement.
On
3.8.2006, PTL and 4 others i.e. Respondent Nos. 1to 5 herein filed Company
Petition No. 68 of 2006 before the Company Law Board, Principal Bench, New
Delhi seeking redressal under Sections 397,398,402 etc. of the Companies Act,
1956 (for short the "Companies Act") for oppression and mismanagement
on the part of the appellant and nominee directors of the appellant in the
management and conduct of the affairs of Swaraj Mazda Ltd., the company in
issue (Respondent No.6 herein). In the company petition, the appellant herein
i.e. S.C. filed an application being C.A. No. 259 of 2006 seeking reference to
arbitration under Section 45 and alternatively under Section 8 of the
Arbitration & Conciliation
Act, 1996 (hereinafter referred to as the "Arbitration Act"). On
26.9.2006, the Company Law Board passed an order refusing to refer the parties
to arbitration under Section 45 of the Act. Against the said order, the
appellant filed an appeal being F.A.O. No. 305 of 2006 under Section 50 of the
Act on 30.10.2006 in the High Court of Delhi.
On
21.2.2007, the High Court delivered the judgment dismissing the appeal not on
merits but for lack of territorial jurisdiction holding that Section 10(1)(a)
of the Companies Act will take precedence over Section 50 of the Arbitration
Act.
Aggrieved
by the said order, the appellant SC filed this appeal before this Court.
4) We
heard Mr. C.A. Sundaram, learned senior counsel appearing for the appellant and
Mr. Sudipto Sarkar and Mr. Jaideep Gupta, learned senior counsel appearing for
the contesting respondents.
5)
According to Mr. C.A. Sundaram, learned senior counsel for the appellant, the
High Court whilst noticing that it was the forum under Section 50 of the
Arbitration Act has committed an error in holding that the forum of appeal was
not the forum contemplated under Section 50 of the said Act and the appeal was
liable to be filed in forum contemplated under Section 10(1)(a) of the
Companies Act. He further submitted that in view of the fact that the appellant
herein filed an application under Section 45 of the Arbitration Act though in a
petition filed under Sections 397, 398, 402 etc. of the Companies Act for
oppression and mis-management, in the light of the language used, namely,
"judicial authority"
under
Section 45 of the Arbitration Act, the order dated 26.09.2006 having been
passed by the Company Law Board (for short the "CLB") in its capacity
as a judicial authority under the Arbitration Act, the appeal against the order
lies under the Arbitration Act. He also submitted that the source of
jurisdiction of the CLB exercising powers in passing the order impugned in the
High Court is Section 45 of the Arbitration Act and not any provision of the
Companies Act.
According
to him, the Arbitration Act has been held to be a complete code as regards the
law of arbitration and the same being a special statute has overriding effect
than the Companies Act in the light of the language used in Section 50 of the
Arbitration Act. The Delhi High Court is the appropriate Court authorized by
law to hear appeals; hence the contrary conclusion cannot be sustained and
liable to be interfered. On the other hand, Mr. Sudipto Sarkar and Mr. Jaideep Gupta,
learned senior counsel for the contesting respondents submitted that Section 50
of the Arbitration Act clearly suggests that an appeal shall lie from the order
of the CLB to the Court authorized by law to hear the appeal from such order of
the CLB. In other words, according to them, in the event the order under
Section 45 is passed by the CLB, the forum which is provided under law for
hearing the appeal from the orders of the CLB, will be the Appellate Forum.
They elaborated that Section 10-F read with Section 10(1)(a) of the Companies
Act, provides for such forum to hear the appeal from the orders of the CLB as
the High Court within the jurisdiction of which the Registered Office of the
company in issue is situated.
6) We
have carefully perused all the relevant materials, Annexures and considered the
rival contentions. The only question to be considered in the present appeal is
whether the order dated 26.09.2006 of the CLB refusing to refer parties to
arbitration under Section 45 of the Arbitration Act was liable to be challenged
to the forum under Section 50 of the Arbitration Act or to the forum under
Section 10(1)(a) of the Companies Act.
7) It
is relevant to point out that in a company petition filed by the PTL and 4
others (Respondent Nos.1-5 herein) before the CLB, Principal Bench, New Delhi,
the second respondent therein (appellant herein, namely, SC) filed Company
Application No. 259 of 2006 under Section 45 of the Arbitration Act for
referring the parties to arbitration. The said Section 45 reads thus:
"45.
Power of judicial authority to refer parties to arbitration.- Notwithstanding
anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of
1908), a judicial authority, when seized of an action in a matter in respect of
which the parties have made an agreement referred to in section 44, shall, at
the request of one of the parties or any person claiming through or under him,
refer the parties to arbitration, unless it finds that the said agreement is
null and void, inoperative or incapable of being performed."
By
pointing out the provisions of the Joint Venture Agreement (in short
"JVA"), it was contended on behalf of the appellant that the dispute
having directly arisen from the terms of the arbitration agreement, the same
has to be necessarily determined only by the arbitral tribunal, hence the CLB
is bound to refer the parties to arbitration. It is not in dispute that as held
by this Court in Hindustan Petroleum Corpn. Ltd. vs. Pinkcity Midway Petroleums,
(2003) 6 SCC 503, if there is an arbitration clause, in terms of Section 8, the
Court has a mandatory duty to refer the disputes arising between the
contracting parties to arbitrator. It is also not in dispute that in Bhatia
International vs. Bulk Trading S.A., (2002) 4 SCC 105, it has been held that
Part 1 of the Act applies to international arbitration held outside India also.
On the other hand, it was submitted on behalf of the respondents that the
appellant invoked the provisions of the Arbitration Act on the ground that both
JVA and Share Purchase Agreement (in short "SPA") provide for
arbitration, in the JVA arbitration has been provided only in case of disputes
between the company (SVL/PTL on the one hand and Mazda/SC on the other), there
is no provision for an arbitration in case of disputes between the company and
the contesting respondents. It was also pointed out that in the two agreements,
namely, JVA and SPA three arbitral tribunals have been named, hence in the
light of the uncertainty regarding the contractual forum to which the parties
are to be referred, the application cannot be entertained. It was also
highlighted since some of the respondents herein were not being parties to the
JVA, they cannot be referred to arbitration. It was also pointed out that the
main grievance is that the company is not complying with the provisions of
Article 87, therefore, the actual dispute is between the company and the
respondents, even though the company is a party to the JVA, the arbitration
clause does not cover the company, in such an event, the question of referring
the parties to arbitration does not arise.
8) In
the company application filed by the appellant herein, the main allegation
relates to the claim, namely, the PTL has the right to nominate four directors
and it is based on not only clause 4(1) of JVA but also on article 87 of AOA.
We have already referred to the fact that the said application had been filed
under Section 45 of the Arbitration Act. Section 2(h) of the Arbitration Act
mentions that the "party" means a party to an arbitration agreement.
To put it clear the party to the judicial proceeding should be a party to the
arbitration agreement. As rightly observed by the CLB, the proceeding under
Section 397/398 of the Companies Act always relates to the affairs of the
company. Insofar as the arbitration clause in the JVA is concerned, to bind the
company it has to be a party to the arbitration agreement. It was pointed out
that even though the company is a party to the JVA, no arbitration has been
provided for disputes between the shareholders and the company or in relation
to allegations in the affairs of the company. A perusal of the agreement show
that the arbitration clause contained in JVA has provided for resolution of
disputes through arbitration classifying the company and/or PTL as one party
and Mazda or SC as another party. In other words, no arbitration has been
envisaged in the JVA if dispute arises even with reference to the terms of the
JVA between PTL on the one hand and the company on the other. It is relevant to
mention that the provisions of Section 397/398 of the Companies Act can be
invoked only if the disputes, even among the shareholders or allegations
against each other, relate to the affairs of a company. In the company
petition, the composition of the board of directors is in the affairs of the company
and the contesting respondents herein have alleged that the company is not
complying with the provisions of article 87 in the matter of composition of the
board. The CLB, on analyzing those relevant aspects, concluded that the
grievances of the petitioners therein (contesting respondents) falls squarely
in the affairs of the company and since no arbitration has been provided in
regard to the disputes between PTL and the company, there is no arbitration
agreement at all between the company and PTL in the JVA to refer the parties to
arbitration.
The
CLB has also concluded that petitioner Nos. 2-5 therein are not parties to
either of the two agreements. Based on the above factual aspects, the CLB has
concluded that there is no commonalities of parties and considering all the
relevant aspects arrived at a conclusion that the application deserves to be
dismissed on the main ground that the company in the affairs of which
application has been filed, is not a party to the arbitration agreement in the
JVA and petitioner Nos. 2 to 5 therein were not parties to the JVA or SPA could
also independently prosecute the said petition as they satisfy the requirements
of Section 399 and finally, the arbitral forum is not specific.
9) In
the light of the said conclusion, in order to ascertain the correctness of the
same, it is useful to refer to the provisions of Section 50 of the Arbitration
Act and Section 10(1)(a) and Section 10-F and of the Companies Act.
"50.
Appealable orders.-
(1) An
appeal shall lie from the order refusing to-
(a) refer
the parties to arbitration under section 45;
(b) enforce
a foreign award under section 48, to the court authorized by law to hear
appeals from such order.
(2) xxx
xxxx"
"10.
Jurisdiction of Courts.-
(1)
The Court having jurisdiction under this Act shall be-
(a)
the High Court having jurisdiction in relation to the place at which the
registered office of the company concerned is situate, except to the extent to
which jurisdiction has been conferred on any District Court or District Courts
subordinate to that High Court in pursuance of sub-section (2); and
(b) where
jurisdiction has been so conferred, the District Court in regard to matters
falling within the scope of the jurisdiction conferred, in respect of companies
having their registered offices in the district."
"10F.
Appeals against the order of the Company Law Board.- Any person aggrieved by
any decision or order of the Company Law Board made before the commencement of
the Companies (Second Amendment) Act, 2002 may file an appeal to the High Court
within sixty days from the date of communication of the decision or order of
the Company Law Board to him on any question of law arising out of such order:
Provided
that the High Court may, if it is satisfied that the appellant was prevented by
sufficient cause from filing the appeal within the said period, allow it to be
filed within a further period not exceeding sixty days."
The
above provisions make it clear that the forum shall be court authorized by law
to hear the appeals from such order.
In
this regard, it is useful to reproduce the Explanation to Section 47 of the
Arbitration Act which reads thus:
"47.
Evidence.- xxx xxxx
Explanation.- In this section and all the
following sections of this Chapter, "Court" means the principal Civil
Court of original jurisdiction in a district, and includes the High Court in
exercise of its ordinary original civil jurisdiction, having jurisdiction over
the subject-matter of the award if the same had been the subject-matter of a
suit, but does not include any civil court of a grade inferior to such
principal Civil Court, or any Court of Small Causes."
As
rightly pointed out, it is clear that unlike the explanation to Section 47,
Section 50 uses the expression "Court" not simpliciter but qualified
by the wording "authorized by law to hear appeals from such order."
It is not the court having jurisdiction if the subject-matter is a suit where
jurisdiction is determined in accordance with the provisions of Sections 16-20
of the Code of Civil Procedure. On the other hand, Section 50 of the
Arbitration Act specifically used the word "authorized by law" and
not the "Civil Procedure Code" or "suit".
In Smt.
Ganga Bai vs. Vijay Kumar and Others, (1974) 2 SCC 393, while considering
relevant provisions from the Civil Procedure Code in respect of right of appeal
against a finding, res judicata etc., this Court in para 15 held thus:
"15.
It is thus clear that the appeal filed by Defendants 2 and 3 in the High Court
was directed originally not against any part of the preliminary decree but
against a mere finding recorded by the trial court that the partition was not
genuine. The main controversy before us centres round the question whether that
appeal was maintainable. On this question the position seems to us well
established. There is a basic distinction between the right of suit and the
right of appeal. There is an inherent right in every person to bring a suit of
a civil nature and unless the suit is barred by statute one may, at one's
peril, bring a suit of one's choice. It is no answer to a suit, howsoever
frivolous to claim, that the law confers no such right to sue. A suit for its
maintainability requires no authority of law and it is enough that no statute
bars the suit. But the position in regard to appeals is quite the opposite. The
right of appeal inheres in no one and therefore an appeal for its
maintainability must have the clear authority of law. That explains why the
right of appeal is described as a creature of statute."
It is
clear that if there is no bar in any statute, no difficulty in filing a suit,
on the other hand in the case of appeals for its maintainability there must be
a specific provision/clear authority of law. In view of the same, while
exercise of original jurisdiction as provided in Section 47 and other similar
sections of the Arbitration Act should be by the court within the jurisdiction
of which the suit would have been filed, the appeal shall always be to the
appellate forum which hears appeals from the order of the forum which passes
the order. It is also clear from Section 37 of the Act dealing with appeals.
Here
also the appeal is to the court which hears the appeal and not the court which
exercises original jurisdiction if the subject-matter had been a suit as provided
in the explanation to Section 47 or Section 2(c) of the Arbitration Act. To our
mind, the reading of Section 50 clearly suggests that an appeal shall lie from
the order of the CLB to the court authorized by law to hear the appeals from
such order of the CLB. To make it clear that in the event the order under
Section 45 is passed by the CLB, the forum which is provided under law for
hearing the appeal from the order of the CLB, will be the Appellate Forum. In
other words, while Section 50 of the Arbitration Act provides for the orders
which can be made the subject-matter of the appeal, the forum to hear the
appeal is to be tested with reference to the appropriate law governing the
authority or forum which passed the original order, that is, in the case on
hand, the CLB. Section 10F read with Section 10(1)(a) of the Companies Act
provides for such forum to hear the appeal from the orders of the CLB as the
High Court within the jurisdiction of which the Registered Office of the
company in issue is situated.
10)
Now let us look into Section 10(1)(a) and Section 10F of the Companies Act. An
appeal against any order of the CLB including an order passed refusing
reference to arbitration shall lie to the High Court within the jurisdiction of
which the Registered Office of the company is situated. That is the reason
Section 50 of the Arbitration Act purposively uses the expression
"authorized by law to hear the appeal". As rightly pointed out, it
cannot be that an order passed by the CLB becomes appealable to a civil court
or a court exercising civil jurisdiction when Parliament has chosen to provide
for a specific appellate forum which should hear the appeal from the orders of
the CLB.
11) In
Stridewell Leathers (P) Ltd. and Others vs. Bhankerpur Simbhaoli Beverages (P)
Ltd., and Others, (1994) 1 SCC 34, the main question for decision relates to
the meaning of the expression "the High Court" in Section 10F of the
Companies Act, 1956 which has been inserted in the principal Act by the
Companies (Amendment) Act, 1988 w.e.f. May 31, 1991. The controversy is whether
the High Court to which the appeal lies under Section 10F from an order of the
CLB is the High Court having jurisdiction in relation to the place at which the
registered office of the Company is situate or it is the High Court having
jurisdiction in relation to the place at which the Company Law Board makes the
order under appeal. The Court has concluded as under:- "18. For the
aforesaid reasons, we are of the opinion that the expression "the High
Court" in Section 10-F of the Companies Act means the High Court having
jurisdiction in relation to the place at which the registered office of the
company concerned is situate as indicated by Section 2(11) read with Section
10(1)(a) of the Act.
Accordingly,
in the present case, the appeal against the order of the Company Law Board
would lie in the Madras High Court which has jurisdiction in relation to the
place at which the registered office of the company concerned is situate and
not the Delhi High Court merely because the order was made by the Company Law
Board at Delhi. This appeal is allowed and the impugned order made by the Delhi
High Court is set aside resulting in acceptance of the preliminary objection
raised by the appellants in the Delhi High Court. The Delhi High Court will now
make the consequential order."
As per
the ratio decidendi, the appeal under Section 50 of the Arbitration Act from an
order passed by the CLB on matters concerning Swaraj Mazda whose Registered
Office is in Punjab is maintainable in the High Court
of Punjab and Haryana and not to the High Court of Delhi. Reliance placed by
the appellant on the decision of the High Court of Punjab and Haryana in Hind Samachar
Ltd., Jalandhar vs. Smt. Sudarshan Chopra and Others, (2002) 4 Comp LJ 1 to
contend that an appeal from an order passed by the CLB sitting in Delhi should
be to the Delhi High Court notwithstanding the Registered Office of the company
concerned is in Punjab is not sustainable. A perusal of the said decision shows
that the Punjab and Haryana High Court was not
considering the issue of territorial jurisdiction on matters arising out of an
order passed by the CLB. On the other hand, the High Court was considering the
issue whether an appeal is maintainable from an order passed by the CLB
rejecting the application under Section 8 of the Arbitration Act when Section
37 of the said Act expressly provides that no appeal shall lie against orders
specifically mentioned in Section 37 and from no others and Section 8 is not
mentioned in that section. As rightly pointed out by learned senior counsel
appearing for the contesting respondents in that case the Punjab and Haryana
High Court did not consider the issue that when an appeal lies which Court will
have jurisdiction to entertain and decide the appeal. This is clear from the
reading of paras 17 and 18 of the judgment of the Punjab and Haryana High Court. It is also
brought to our notice that in Sudarshan Chopra vs. Company Law Board, 2004 (2) Arb
LR 241 referring to various authorities, the very same Punjab and Haryana High
Court has ruled that the jurisdiction of the Company Law Board under Sections
397 and 398 is not in any way affected by the existence of arbitration clause
and, therefore, the CLB which exercises power under those Sections and passes
orders as per the provisions of Section 402 of the Companies Act can proceed
with the matter notwithstanding the arbitration clause.
12) In
view of our conclusion, we are satisfied that the appellant has wrongly based
its arguments on matters such as ouster of jurisdiction, over-riding effect of
special statute over general statute, over-riding effect of subsequent statute
etc.
Since
they have no application whatsoever to the matter in issue, there is no need to
refer various decisions in those aspects. Ouster of jurisdiction arises only in
regard to original jurisdiction and it cannot have any application to appellate
jurisdiction as the one provided in Section 50 of the Arbitration Act. The
appeal is a statutory remedy and it can lie only to the specified forum. The
appellate forum cannot be decided on the basis of cause of action as applicable
to original proceedings such as suit which could be filed in any court where
part of cause of action arises. In such circumstances, we are unable to accept
the lengthy arguments advanced on the above-mentioned subject by learned senior
counsel for the appellant. Likewise, the submission of the appellant, namely,
the Arbitration Act being a special and subsequent statute has no relevance to
the present case.
13) In
the light of what has been stated above, we sustain the impugned order of the
High Court dated 21.02.2007 in F.A.O. No. 305 of 2006. Consequently, the appeal
fails as devoid of any merit and the same is dismissed. It is made clear that
the time taken by the appellant in pursuing their appeal before the Delhi High
Court as well as this Court shall be excluded for the purpose of limitation. No
costs.
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