Companies Act Case Law Sumitomo Corporation Vs CDC Financial Services (Mauritius) Ltd. & Ors

CASE NO.:
Appeal (civil) 1496 of 2008

PETITIONER:
Sumitomo Corporation

RESPONDENT:
CDC Financial Services (Mauritius) Ltd. & Ors

DATE OF JUDGMENT: 22/02/2008

BENCH:
Tarun Chatterjee & P. Sathasivam

JUDGMENT:
JUDGMENT

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.

Leave a Comment