Dhananjay Mishra vs Dynatron Services Pvt. Ltd. & Ors

[Arising out of Order dated 31st August, 2018 passed by the National Company Law Tribunal, Mumbai Bench in M.A. No. 552/2018 in CP No. 1151/241-244/NCLT/MB/MAH/2018]

IN THE MATTER OF:

Dhananjay Mishra, S/o Sh. Gulabchand Mishra, R/o Sandy Flama, Dosti Flamingos, 807B, T. J. Road, Sewri, Parel, Mumbai - 400 015. ...Appellants

Vs

1. Dynatron Services Private Limited, Having its registered office at 104, Mittal Chamber, Nariman Point, Mumbai - 400 021.

2. Yeoman Marine Services Private Limited, Having its registered office at Unit No.31, Nilgiri Industrial Estate, T. J. Road, Sewri, Parel, Mumbai - 400 015.

3. Seema Dhananjay Mishra, W/o Sh. Dhananjay Minhra. R/o Sandy Flama, Dosti Flamingos, 807B, T. J. Road, Sewri, Parel, Mumbai - 400 0 15.

....Respondents

Present:

For Appellant: Mr. Rahul Chitnis, Mr. Aman Vachher and Mr. Ashutosh Dubey, Advocates. For Respondents: Mr. Vikas Mehta and Mr. Vasanth Bharani, Advocates. -2-

BANSI LAL BHAT, J.

This appeal is directed against an order dated 31st August, 2018

passed by National Company Law Tribunal, Mumbai Bench (hereinafter

referred to as the 'Tribunal') in M. A. No. 552/2018 filed by the Appellant -

'Dhananjay Mishra' figuring as Respondent No.2 in CP No. 1151/241-

244/NCLT/MB/MAH/2018 by virtue whereof the Appellant's application

under Section 8 of the Arbitration and Conciliation Act, 1996 came to be

dismissed. Aggrieved thereof the Appellant has filed the instant appeal

assailing legality and correctness of the impugned order on the grounds set

out in the memo of appeal.

2. For better understanding of the gamut of controversy involved at the

bottom of instant case it would be appropriate to give a flashback of the

events leading to passing of impugned order. Respondent No.1 'Dynatron

Services Private Limited', who is petitioner in the Company Petition pending

determination before the Tribunal, filed CP No. 1151/241-

244/NCLT/MB/MAH/2018 being company petition under Section 241-244

r/w Section 246 of Companies Act, 2013 against Respondents (1)'Yeoman

Marine Services Pvt. Ltd.', (2)'Dhananjay Mishra' and (3)'Seema

Company Appeal (AT) No. 389 of 2018 -3-

Dhananjay Mishra' complaining of oppression and mismanagement with

allegations in the petition that the Appellant - 'Dhananjay Mishra' refused to

appoint Mr. Krishnamurthy and Mr. Avadesh Mishra as nominee directors

of the Petitioner in terms of Second Memorandum of Understanding (MOU)

dated 21st August, 2015 thereby taking entire control of 'Yeoman Marine

Services Pvt. Ltd', denied it access to accounts of the aforesaid

company and indulged in many more acts of oppression and

mismanagement including diversion of funds invested by Petitioner for

formation of 'Yeoman Marine Services Pvt. Ltd'. While the Company

Petition was pending determination, the Appellant herein filed petition

under Section 11 of the Arbitration and Conciliation Act, 1996 before

Bombay High Court praying for appointment of Sole Arbitrator to

decide all claims, disputes and differences between the parties.

Bombay High Court appointed Sole Arbitrator with the consent of both

the parties. Respondent No.1 - 'Dynatron Services Private Limited' is

stated to have approached the Sole Arbitrator with application under

Section 17 of the Arbitration and Conciliation Act, 1996 praying for a

direction to the Appellant to appoint two nominees of Respondent No.1

as Directors on the board of 'Yeoman Marine Services Pvt. Ltd' and

restrain the Appellant from alienating, selling or transferring any of its

assets.

Company Appeal (AT) No. 389 of 2018 -4-

3. The case set up by Appellant before the Tribunal for referring the

disputes between the parties to arbitration under Section 8 of the

Arbitration and Conciliation Act, 1996 was that the disputes raised by

Respondent 'Dynatron Services Private Limited' in Company Petition arose

out of the First MOU dated 15.04.2015 and Second MOU dated 21.08.2015

and in terms of Arbitration Agreement as contained in clauses 17.2 and 5.2

of the first and second MOUs respectively, such disputes are to be finally

settled by a Sole Arbitrator. Respondent No.1 herein who is the Petitioner in

the Company Petition did not file reply before the Tribunal but relied upon

written submissions to oppose the motion. On consideration of the stands

taken by the respective sides, the Tribunal crystallized the controversy

involved in the application into the following issues:-

(i) Whether the Petition is barred under law in view of the Application

filed u/s 17 of Arbitration and Conciliation Act before the Sole

Arbitrator and the Petitioner voluntarily submitting himself to the

jurisdiction of Arbitral Tribunal?

(ii) Whether the acts complained of in the Petition can be adjudicated

by the Sole Arbitrator while adjudicating issues before him?

(iii) Whether the Petition is dressed up to suit the requirements u/s

241 and 242 of the Companies Act, 2013?

Company Appeal (AT) No. 389 of 2018 -5-

4. On consideration of the pleadings and submissions of the parties, the

Tribunal found that the grounds urged in application u/s 17 of the

Arbitration and Conciliation Act and the issues raised in the Company

Petition are separate. Therefore application under Section 17 of Arbitration

and Conciliation Act, 1996 does not preclude Petitioner - 'Dynatron Services

Private Limited' to agitate its grievance of oppression and mismanagement in

the petition. The Tribunal was further of the opinion that the reliefs sought

in the Company Petition did not arise out of any contractual obligation and

the acts complained of could not be adjudicated upon by the Sole Arbitrator.

It further held that the powers available to National Company Law Tribunal

to adjudicate upon issues of oppression and mismanagement, financial

irregularities, appointment of Directors, etc. could not be exercised by the

Sole Arbitrator. Thus all contentions raised by the Appellant were repelled

resulting in dismissal of the application. The Company Petition No.

1151/2018 was held to be maintainable.

5. The sole issue arising for consideration in this appeal is whether the

issues raised in the Company Petition qua allegations of oppression and

mismanagement are arbitrable?

6. Learned counsel for Appellant contends that the grievances of the

Respondent No.1 - 'Dynatron Services Private Limited' in the Company

Petition essentially relate to allegations of business of the Respondent No.2 -

'Yeoman Marine Services Pvt. Ltd' not being carried out in terms of the

Company Appeal (AT) No. 389 of 2018 -6-

MOUs that constitute disputes which can be finally settled under

provisions of Arbitration and Conciliation Act, 1996 by a Sole

Arbitrator appointed in terms of the Arbitration Agreement contained

in clause 17.2 of the First MOU and Clause 5.2 of the Second MOU

and there is only a passing reference to oppression and

mismanagement in the Company Petition. It is further contended that

if appointment of independent Auditor within competence of Arbitrator

is allowed, other prayers would not survive for consideration. It is

submitted that issues framed by the learned Arbitrator cover the

issues raised in the Company Petition, thus the Company Petition was

only a 'dressed up petition' to steer clear of the arbitration clause

contained in the two MOUs. Per contra it is submitted on behalf of

Respondent No. 1 that Respondent No.1 being 49 per cent shareholder

of Respondent No. 2 has been illegally ousted from functioning and

management of the Company and none of its Directors are on board,

no notices of AGM or EOGM have been given to Respondent No. 1 and

details of management of funds have not been shared with it. The

Company Petition seeks to enforce the statutory rights of Respondent

No. 1 as a shareholder and the reliefs claimed in the Company Petition

seek an appropriate order to bring to an end acts of oppression and

mismanagement apart from jointly controlling and managing

Respondent No. 2 and allied reliefs which can be granted only by

Company Appeal (AT) No. 389 of 2018 -7-

NCLT exercising exclusive jurisdiction under the Companies Act, 2013

and not by the Arbitrator. Learned counsel for Respondent No.1

vehemently refuted the allegation of the Company Petition being a

'dressed up petition'. It is further contended that four reliefs have

been voluntarily dropped by Respondent No. 1 in its application u/s

17 of the Arbitration and Conciliation Act, 1996 as the Company

Petition was pending. Learned counsel for Respondent No.1 has

pointed out that the Appellant has suppressed the factum of having

challenged the consent order dated 4th April, 2018 of Bombay High

Court appointing the Arbitrator before the Hon'ble Apex Court in SLP

(C) No.18470 of 2018 which stands dismissed vide order dated 30 th

July, 2018.

7. The distinction in law between disputes that are capable of

arbitral resolution and those that are not constitutes the question of

arbitrability. Same fell for consideration of the Hon'ble Apex Court in

'Booz Allen & Hamilton Inc.' Vs. 'SBI Home Finance Ltd.' reported in

(2011) 5 SCC 532. It held:-

"34. The term "arbitrability" has different

meanings in different contexts. The three facets of

Company Appeal (AT) No. 389 of 2018 -8-

arbitrability, relating to the jurisdiction of the Arbitral

Tribunal, are as under:

(i) Whether the disputes are capable of adjudication

and settlement by arbitration? That is, whether the

disputes, having regard to their nature, could be

resolved by a private forum chosen by the parties (the

Arbitral Tribunal) or whether they would exclusively

fall within the domain of public fora (courts).

(ii) Whether the disputes are covered by the arbitration

agreement? That is, whether the disputes are

enumerated or described in the arbitration agreement

as matters to be decided by arbitration or whether the

disputes fall under the "excepted matters" excluded

from the purview of the arbitration agreement.

(iii) Whether the parties have referred the disputes to

arbitration? That is, whether the disputes fall under

the scope of the submission to the Arbitral Tribunal, or

whether they do not arise out of the statement of claim

and the counterclaim filed before the Arbitral Tribunal.

A dispute, even if it is capable of being decided by

Company Appeal (AT) No. 389 of 2018 -9-

arbitration and falling within the scope of arbitration

agreement, will not be "arbitrable" if it is not

enumerated in the joint list of disputes referred to

arbitration, or in the absence of such joint list of

disputes, does not form part of the disputes raised in

the pleadings before the Arbitral Tribunal.

35. The Arbitral Tribunals are private fora chosen

voluntarily by the parties to the dispute, to adjudicate

their disputes in place of courts and tribunals which

are public fora constituted under the laws of the

country. Every civil or commercial dispute, either

contractual or non-contractual, which can be decided

by a court, is in principle capable of being adjudicated

and resolved by arbitration unless the jurisdiction of

the Arbitral Tribunals is excluded either expressly or

by necessary implication. Adjudication of certain

categories of proceedings are reserved by the

legislature exclusively for public fora as a matter of

public policy. Certain other categories of cases, though

not expressly reserved for adjudication by public fora

(courts and tribunals), may by necessary implication

Company Appeal (AT) No. 389 of 2018 -10-

stand excluded from the purview of private fora.

Consequently, where the cause/dispute is

inarbitrable, the court where a suit is pending, will

refuse to refer the parties to arbitration, under Section

8 of the Act, even if the parties might have agreed

upon arbitration as the forum for settlement of such

disputes.

36. The well-recognised examples of non-arbitrable

disputes are: (i) disputes relating to rights and

liabilities which give rise to or arise out of criminal

offences; (ii) matrimonial disputes relating to divorce,

judicial separation, restitution of conjugal rights, child

custody; (iii) guardianship matters; (iv) insolvency and

winding-up matters; (v) testamentary matters (grant of

probate, letters of administration and succession

certificate); and (vi) eviction or tenancy matters

governed by special statutes where the tenant enjoys

statutory protection against eviction and only the

specified courts are conferred jurisdiction to grant

eviction or decide the disputes.

Company Appeal (AT) No. 389 of 2018 -11-

37. It may be noticed that the cases referred to

above relate to actions in rem. A right in rem is a right

exercisable against the world at large, as contrasted

from a right in personam which is an interest

protected solely against specific individuals. Actions in

personam refer to actions determining the rights and

interests of the parties themselves in the subject-

matter of the case, whereas actions in rem refer to

actions determining the title to property and the rights

of the parties, not merely among themselves but also

against all persons at any time claiming an interest in

that property. Correspondingly, a judgment in

personam refers to a judgment against a person as

distinguished from a judgment against a thing, right

or status and a judgment in rem refers to a judgment

that determines the status or condition of property

which operates directly on the property itself.

(Vide Black's Law Dictionary.)

38. Generally and traditionally all disputes relating

to rights in personam are considered to be amenable

to arbitration; and all disputes relating to rights in rem

Company Appeal (AT) No. 389 of 2018 -12-

are required to be adjudicated by courts and public

tribunals, being unsuited for private arbitration. This

is not however a rigid or inflexible rule. Disputes

relating to subordinate rights in personam arising

from rights in rem have always been considered to be

arbitrable.

39. The Act does not specifically exclude any

category of disputes as being not arbitrable. Sections

34(2)(b) and 48(2) of the Act however make it clear

that an arbitral award will be set aside if the court

finds that "the subject-matter of the dispute is not

capable of settlement by arbitration under the law for

the time being in force".

40. Russell on Arbitration (22nd Edn.) observed thus

(p. 28, Para 2.007):

"Not all matters are capable of being referred to

arbitration. As a matter of English law certain matters

are reserved for the court alone and if a tribunal

purports to deal with them the resulting award will be

unenforceable. These include matters where the type

Company Appeal (AT) No. 389 of 2018 -13-

of remedy required is not one which an Arbitral

Tribunal is empowered to give."

The subsequent edition of Russell (23rd Edn., p. 470,

Para 8.043) merely observes that English law does

recognise that there are matters which cannot be

decided by means of arbitration.

41. Mustill and Boyd in their Law and Practice of

Commercial Arbitration in England (2nd Edn., 1989),

have observed thus:

"In practice therefore, the question has not been

whether a particular dispute is capable of settlement

by arbitration, but whether it ought to be referred to

arbitration or whether it has given rise to an

enforceable award. No doubt for this reason, English

law has never arrived at a general theory for

distinguishing those disputes which may be settled by

arbitration from those which may not. ...

Second, the types of remedies which the arbitrator can

award are limited by considerations of public policy

Company Appeal (AT) No. 389 of 2018 -14-

and by the fact that he is appointed by the parties

and not by the State. For example, he cannot impose a

fine or a term of imprisonment, commit a person for

contempt or issue a writ of subpoena; nor can he

make an award which is binding on third parties or

affects the public at large, such as a judgment in

rem against a ship, an assessment of the rateable

value of land, a divorce decree, a winding-up order...."

(emphasis supplied)

Mustill and Boyd in their 2001 Companion Volume to

the 2nd Edn. of Commercial Arbitration, observe thus

(p. 73):

"Many commentaries treat it as axiomatic that 'real'

rights, that is, rights which are valid as against the

whole world, cannot be the subject of private

arbitration, although some acknowledge that

subordinate rights in personam derived from the real

rights may be ruled upon by arbitrators. The

conventional view is thus that, for example, rights

under a patent licence may be arbitrated, but the

Company Appeal (AT) No. 389 of 2018 -15-

validity of the underlying patent may not ... An

arbitrator whose powers are derived from a private

agreement between A and B plainly has no

jurisdiction to bind anyone else by a decision on

whether a patent is valid, for no one else has

mandated him to make such a decision, and a

decision which attempted to do so would be useless."

(emphasis supplied)

42. The distinction between disputes which are

capable of being decided by arbitration, and those

which are not, is brought out in three decisions of this

Court. In Haryana Telecom Ltd. v. Sterlite Industries

(India) Ltd. [(1999) 5 SCC 688] this Court held: (SCC

pp. 689-90, paras 4-5)

"4. Sub-section (1) of Section 8 provides that the

judicial authority before whom an action is brought in

a matter, will refer the parties to arbitration the said

matter in accordance with the arbitration agreement.

This, however, postulates, in our opinion, that what

can be referred to the arbitrator is only that dispute or

Company Appeal (AT) No. 389 of 2018 -16-

matter which the arbitrator is competent or

empowered to decide.

5. The claim in a petition for winding up is not for

money. The petition filed under the Companies Act

would be to the effect, in a matter like this, that the

company has become commercially insolvent and,

therefore, should be wound up. The power to order

winding up of a company is contained under the

Companies Act and is conferred on the court. An

arbitrator, notwithstanding any agreement between

the parties, would have no jurisdiction to order

winding up of a company. The matter which is

pending before the High Court in which the application

was filed by the petitioner herein was relating to

winding up of the company. That could obviously not

be referred to arbitration and, therefore, the High

Court, in our opinion was right in rejecting the

application."

(emphasis supplied)"

Company Appeal (AT) No. 389 of 2018 -17-

8. The dictum of Hon'ble Apex Court is loud and clear. The judicial

authority which includes the National Company Law Tribunal which is

ceased of the Company Petition under Section 241-244 r/w 246 of the

Companies Act, 2013 would be bound to refer the parties to

arbitration of the matter brought before it in accordance with the

arbitration agreement provided that the arbitrator is competent or

empowered to decide such dispute. Be it seen that the claim in the

Company Petition pending adjudication before the Tribunal relates to

matters arising out of the two Memorandums of Understanding.

Disputes raised by the Respondent No. 1 in the Company Petition are

in regard to alleged acts of oppression and mismanagement. It is

alleged by Respondent No. 1 in the Company Petition that the

Appellant has neither transferred the assets of 'Yeoman Marine

Services Pvt. Ltd' to the newly formed company as provided in Second

MOU nor conducted the business in accordance with the First MOU

but has also allotted 51 per cent equity shares in the Company to

himself and his wife thereby assuming complete management control

to the exclusion of Respondent No. 1 seriously prejudicing its

interests. From the relief clause in the Company Petition, it emerges

that Respondent No. 1 seeks relief under Section 241 to 244 r/w 246

of the Companies Act, 2013 to bring an end to the acts of oppression

and mismanagement perpetrated by the Appellant besides directing

Company Appeal (AT) No. 389 of 2018 -18-

joint management and control of the company by Respondent No.1

and the Appellant. Petitioner (Respondent No. 1) also sought the relief

of induction of two Nominee Directors on the Board of Directors

besides other allied and connected reliefs in addition to carrying out of

independent audit through an independent Auditor. The allegations

in the Company Petition and the nature of relief claimed therein leaves

no room for doubt that the Company Petition raises vital issues

pertaining to exclusive jurisdiction of the Tribunal. Relief claimed in

the backdrop of allegations of oppression and mismanagement would

depend on the finding that the affairs of the Company have been

conducted in a manner prejudicial or oppressive to the Petitioner

(Respondent No. 1 herein) and that to windup the Company would

unfairly prejudice Petitioner though otherwise the facts justify the

making of a winding up order on the ground that it was just and

equitable that the company should be wound up. The Tribunal,

empowered under Section 242 (2) of Companies Act, 2013 may, with a

view to bring to an end the matters complained of, make such order as

it thinks fit. On a plain reading of Section 242, it is manifestly clear

that the facts should justify the making of a winding up order on just

and equitable grounds. Admittedly, Arbitrator would have no

jurisdiction to pass a winding up order on the ground that it is just

and equitable which falls within the exclusive domain of the Tribunal

Company Appeal (AT) No. 389 of 2018 -19-

under Section 271(e). That apart acts of non-service of notice of

meetings, financial discrepancies and non-appointment of Directors

being matters specifically dealt with under Companies Act and falling

within the domain of the Tribunal to consider grant of relief under

Section 242 of Companies Act render the dispute non-arbitrable

though it cannot be disputed as a broad proposition that the dispute

arising out of breach of contractual obligations referable to the MOUs

or otherwise would be arbitrable. It is also indisputable that the

statutory powers and plenary jurisdiction vested in the Tribunal

renders it the appropriate forum to deliver result oriented justice.

Admittedly, the statutory jurisdiction vested in the Tribunal cannot be

exercised by the Arbitrator. Given the nature of allegations in the

Company Petition in the context of reliefs that survive for

consideration there is no escape from the conclusion that the dispute

raised in the Company Petition and sought to be referred for

arbitration is non-arbitrable. No exception in this regard can be taken

to the view adopted by the Tribunal.

9. The impugned order, viewed in the light of foregoing discussion,

does not suffer from any legal infirmity and does not call for

interference. We are of the considered opinion that the Tribunal has

Company Appeal (AT) No. 389 of 2018 -20-

correctly dealt with the issue and the finding is legally justified and

sustainable. The appeal is accordingly dismissed. There shall be no

orders as to costs.

[Justice Bansi Lal Bhat] Member (Judicial)

[Balvinder Singh] Member (Technical)

NEW DELHI

10th April, 2019

AM

Company Appeal (AT) No. 389 of 2018