In The Matter Of High Quality ... vs M/S Dwarikesh Sugar Indusries ...
2015 Latest Caselaw 4870 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

AFR
 

 
Court No. - 38
 

 
Case :- COMPANY PETITION No. - 1 of 2009
 

 
Petitioner :- In The Matter Of High Quality Steels Ltd.
 
Respondent :- M/S Dwarikesh Sugar Indusries Ltd.
 
Counsel for Petitioner :- Anil Sharma,Vikas Budhwar
 
Counsel for Respondent :- Ravi Kant,Tarun Agrawal
 

 
Hon'ble Pankaj Mithal,J.

The petitioner High Quality Steels Ltd. applied under Section 433 (e) and (f) and Section 434 of the Companies Act, 1956 for the winding up of Dwarikesh Sugar Industries Ltd., a company incorporated under the companies Act and having its registered office in district Bijnor, Uttar Pradesh on the ground that the company is unable to pay its debts arising out of three contracts all dated 27.03.2005.

On the presentation of the company petition, notices were issued to Dwarikesh Sugar Industries Ltd. and a counter affidavit in reply to the winding up petition was filed by it in February, 2009.

After filing of the reply in the proceedings, an application under Section 8 of the Arbitration and Conciliation Act, 1996 was moved by Dwarikesh Sugar Industries Ltd. in February, 2013 for referring the dispute to the Arbitration on the allegation that the contracts which have lead to the filing of winding up petition contain arbitration agreements.

The aforesaid application is for consideration before me.

Heard Sri Anil Sharma and Sri Vikas Budhwar, for the petitioner company and Sri Ravi Kant, Senior Counsel, assisted by Sri Tarun Agrawal for the respondent company.

Section 8 of the Arbitration and Conciliation Act, 1996 provides that a judicial authority before whom an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies refer the parties to arbitration. In short, if a dispute is covered by arbitration clause and is referable to arbitration, the Court before whom an action has been brought may refer the parties to the arbitration on an application of either of the parties. It further provides that the application under Section 8 has to be made by the party before submitting his statement on the substance of the dispute i.e. before filing of the defence and that an application under Section 8 shall only be entertained if it is companied by original arbitration agreement or duly certified copy thereof.

Section 8 of the Arbitration and Conciliation Act, 1996 is quoted below:-

"Power to refer parties to arbitration where there is an arbitration agreement.- (1) A judicial authority before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so applies not later that when submitting his first statement on the substance of the dispute, refer the parties to arbitration.

(2) The application referred to in sub-section (1) shall not be entertained unless it is accompanied by the original arbitration agreement or a duly certified copy thereof.

(3) Notwithstanding that an application has been made under sub-section (1) and that the issue is pending before the judicial authority, an arbitration may be commenced or continued and an barbital award made".

A plain reading of Section 8 of the Act demonstrates that for making a reference to arbitration under the above provision the following three conditions must be fulfilled:-.

1. An application for reference must be filed on or before delivering defence;

2. The application must be accompanied by the original arbitration agreement or a duly certified copy thereof; and

3. The application before the judicial authority must be in respect of the subject matter of an arbitration agreement.

In the instant case, an application moved under Section 8 of the Act is not companied by original agreement or its duly certified copy. Therefore, the application is not inconsonance with sub-section 2 of Section 8 of the Act. Moreover, it is admitted on record that the company had delivered its defence in the year 2009 whereas the application under Section 8 was filed in 2013 i.e. after about four years.

There is no dispute that the contracts under which the amount is claimed by the petitioner contain arbitration agreement and the dispute, if any, in relation to the said contracts is referable to arbitration. The arbitration agreement only covers dispute arising out of the contract or in relation thereto.

In proceedings for winding up, the dispute is not in relation to any contract or for recovery of any amount simplicitor rather it concern winding up of a company at the discretion of the Court, if it appears to be fair and equitable on the grounds as enumerated under Section 433 of the Act. The matter of winding up of the company has to be in accordance with provisions of the Act by the company court and by no other judicial authority much less the arbitrator. The matter of winding up is not referable to arbitration. The arbitrator has no authority of law or jurisdiction to order winding up of any company.

In the above circumstances, the provision of Section 8 of the Act would not come into play for referring winding up to the arbitration merely for the reason the contracts giving rise to the dues claimed contain arbitration clause. The petitioner is not claiming adjudication of the dues but winding up of the company as it is unable to pay its admitted debts.

In Haryana Telecom Limited vs. Sterlite Industries (India) Ltd. 1999 (5) SCC 688, a similar application under Section 8 of the Act came to be rejected by the High Court in a winding up proceedings and when the matter was taken up before the Supreme Court, it was held that:-

"Sub-section (1) of section 8 provides that where 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 matter which the arbitrator is competent or empowered to decide.

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 the arbitration and, therefore, the High Court, in our opinion was right in rejecting the application."

The Supreme Court in the above decision clearly laid down that a claim for winding up is not a claim for recovery of money and, therefore, whether a company should be wound up is a matter to be considered only in accordance with the provisions of the Companies Act by the Court that has been conferred with such a power and not by an Arbitrator. The Arbitrator notwithstanding any arbitration agreement between the parties, would have no jurisdiction to order winding up of the company and as such the dispute would not be referable to the arbitration.

In Booz Allen and Hamilton Inc. vs. SBI Home Finance Ltd. and others, 2011 (2) Arb. LR 155 (SC) in paragraph 36 of the above citation, it has been observed as under:-

" The well recognized example 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."

This clearly brings the winding up matters outside the ambit of the arbitration.

In view of the above two decisions of the Supreme Court any submission contrary to it or even to the effect that the amount sought to be recovered or claimed in the winding up petition is disputed would not the sufficient to apply section 8 of the Act so as to refer the parties to arbitration.

Accordingly, the Application No. 50873 of 2013 filed by Dwarikesh Sugasr Industries Ltd. under Section 8 of the Arbitration and Conciliation Act, 1956 has no merit and is rejected.

Order Date :- 1.12.2015

v.k.updh.