AEG AKTIENGESELLSCHAFT Vs. INSOTEX INDIA LIMITED

JUDGEMENT

(1.) THIS appeal arises out of an order rejecting an application under S.34 of the Arbitration Act by the Company Law Board. The first respondent in the appeal is an Indian Company by name Insotex (India) Ltd.

(2.) THE first respondent filed an application before the Company Law Board under S.111 of the Companies Act alleging that they purchased 13,600 shares of the second respondent company from the appellant which is a German Company and a non-resident company, under an agreement between them dt.1-9-1989 for a total consideration of Rs. 13,60,000/-. THE first respondent Insotex (India) Limited duly lodged transfer Instruments together with share certificates with the second respondent company on 4-9-1989. Since the transaction involved transfer of share by a non-resident company, permission of the Reserve Bank of India was obtained subject to certain terms and conditions stipulated by the Reserve Bank of India. THE time granted by the Reserve Bank of India was extended from time to time up to 5-9-1989. According to the first respondent Insotex (India) Limited, they also handed over to the appellant a cheque dt.4-9-1989 for the consideration amount and also paid relevant tax on the same. According to Insotex (India) Limited, they had completed all the formalities regarding transfer of shares by the stipulated date 4-9-1989. THE first respondent Insotex (India) Limited also received a communication from the second respondent company through a copy of the letter addressed by them to the Reserve Bank of India that the transfer of shares had been effected in the books of account of the company by a resolution of the Board of Directors on 17-5-1991. Immediately, thereafter, they received another copy of the letter dt.31-7-1991 addressed by the company to the Reserve Bank of India intimating that the Board of Directors of the second respondent company had in their Board Meeting held on 24-7-1991, rescinded the resolution passed on 17-5-1991 and consequently, the name of the first respondent Insotex (India) limited has been removed from the register of members. Insotex (India) Ltd., further alleged that, no notice of the proposed removal of the name from the register of members was given to them. On various grounds, the Insotex (India) Limited filed a petition before the Company Law Board under S.111 of the Companies Act for rectification of register of members and thereby to include the name of the Insotex as holder of 13,600 shares in the second respondent company.

(3.) ON receipt of the notice from Company Law Board the appellant filed an application under S.34 of the Arbitration Act praying for staying the proceedings before the Company Law Board in view of a provision for arbitration in the agreement between the appellant and the first respondent Insotex (India) Limited. It was contended by the appellant that there is a serious dispute in existence between the appellant and the first respondent Company as to validity of the contract entered into between them for the sale of 13,600 shares in the second respondent company. This dispute warrants adjudication on the validity of the contract and as per clause 7 of the agreement dt.1/4-9-1989, between the appellant and the first respondent, any dispute arising out of the agreement should be settled by arbitration. The first respondent should have invoked the arbitration clause for settlement of the above dispute and if it were invoked, the appellant would, at all time, have been and was even now ready and willing to accept the arbitration and do everything necessary for the proper conduct of the same. It was, therefore, prayed that the proceedings before the Company Law Board may be stayed as per S.34 of the Arbitration Act.