Case Studies

G.  SAIBABA REDDY V. SWAL CORPORATION LTD. [(2009)150 COMP CAS 170 (CLB) BALU. K. K. (VICE-CHAIRMAN) [DECIDED ON 16-5-2008]

Section 397 of the Companies Act 1956 read with section 8 of the Arbitration and Conciliation Act 1996 – oppression and mismanagement – petition for relief – reference to arbitration based on shareholders agreement – no commonality of parties to proceedings and shareholders’ agreement – whether maintainable – held, no

Brief Facts: In a petition filed under section 397 and 398 of the Companies Act, 1956, an application under section 8 of the Arbitration and Conciliation Act, 1996 read with regulation 44 of the Company Law Board Regulations, 1991, was filed by the respondent seeking reference of the disputes raised in the company petition to arbitration as provided under the shareholders’ agreement.

Decision: Application dismissed

Reason: The entire foundation of the company petition was not based on the shareholders’ agreement and hence the dispute could not be referred to arbitration. The relief claimed on account of the specified grievances being independent of shareholders’ agreement were available under sections 397 and 398 read with sections 402 and 403 of the 1956 Act from the Company Law Board alone and its jurisdiction could not be ousted by the consent of the parties.

Company not being a party to the shareholders’ agreement could not be compelled to submit to arbitration at the instance of the respondents. As the fifth respondent had filed a statement of objections on the substance of the dispute before this application was filed, the requirements of section 8 of the 1996 Act for referring the matter to arbitration had not been satisfied.

The exercise of the inherent powers by the company Law Board would run contrary to the provisions of section 8 of the Arbitration and Conciliation Act, 1996 and the application was liable to be rejected.