INSPIRE EDUCATIONAL SERVICES (P.) LTD. AND OTHERS Vs. TRIUMPHANT INSTITUTE OF MANAGEMENT EDUCATION (P.) LTD. AND ANOTHER

JUDGEMENT

(1.) THE present application has been filed by the respondents in the main company petition under section 8 of the Arbitration and Conciliation Act, 1996 read with regulations 14, 17 and 44 of the Company Law Board Regulations, 1991 praying this Bench to refer the above company petition for determination by arbitration. The counsel appearing for the applicants herein submitted that the above company petition has been filed alleging breach of the agreements including the articles of association which contain arbitration clauses, viz., articles of association of the 1st applicant -company herein, the franchisee agreement dated 9th April, 2011 entered into by respondent No. 1 herein with the 1st applicant herein and the shareholder's agreement dated 14th August, 2002 executed by the respondent No. 1 with the applicant Nos. 2 At 3 herein. The aforesaid articles and the agreements provide that any disputes or differences arising the re -under shall be resolved by arbitration. The respondents herein have abused the due process of law by filing the above company petition as the reliefs sought for relate to the issues arising out of the above articles and the agreements which contain the arbitration clause. The parties have consistently agreed to resolution of disputes by arbitration and, therefore, all the disputes raised in the company petition ought to he referred to arbitration. It is pertinent to mention that the respondents herein, in a similar matter concerning a franchisee in Mumbai, have resorted to determination by arbitration and have filed a petition before the Chief Judge, City Civil Court, Hyderabad under section 9 of the Arbitration and Conciliation Act, 1996. In view of the reasons, the present Application may be allowed by referring the parties to arbitration.

(2.) THE respondents herein have filed a detailed counter to this application and contended that the arbitration clauses relied upon by the applicants herein are wholly irrelevant to the present disputes. The above company petition concerns the actions of the applicant Nos. 2 and 3 herein as directors of the company. It concerns diversion of business, use of dominant position to secure unfair advantages against the minority shareholders and to Lai mismanagement of the applicant -company lit their capacity as directors of the company which can only he addressed under sections 397 and 398 of the Companies Act, 1956. The existence of an arbitration clause does not bar the statutory remedies available under the Companies Act, 1956 since the nature of the two proceedings are wholly different. The former deals with the disputes arising between panics to a contract, arising out of rights and liabilities granted under that contract whereas the latter concerns die oppression of a class of shareholders or of mismanagement of a company. The acts of oppression agitated in the above company petition are (a) diversion of company's business; (b) mismanagement of the company; and (c) violation of non -compete clauses. It is the sole prerogative of the respondents herein to choose which remedy to enforce upon. The proceedings in respect of the Mumbai franchisee have nothing to do with the present disputes. In view of the reasons, he requested the Bench to dismiss the application as devoid of merits. In support of this, the learned counsel relied upon the following citations:

(3.) Heard the learned counsel who appeared for the respective parties, perused the pleadings, documents and citations relied upon by them. The only issue felt for consideration is whether the applicants herein have made out a ease to refer the disputes to arbitration. The above company petition was filed by the respondents herein under sections 397, 398, 402 and 406 and other provisions of the Companies Act, 1956. The application herein are the respondents in the above company petition. The respondents alleged the acts of oppression and mismanagement in the affairs of the 1st applicant -companies herein which is called as 'target company'.