Saturday, November 8, 2008

SUPREME COURT RULES ON JURISDICTION IN CASE OF CONFLICT BETWEEN THE ARBITRATION ACT AND THE COMPANIES ACT


In the case of Sumitomo Corporation v. CDC Financial Services (Mauritius) Ltd. and Ors., delivered by a two judge bench of the Supreme Court, the basic issue was whether, in case of a conflict, Section 10(1)(a) of the Companies Act, 1956 would take precedence over Section 50 of the Arbitration and Conciliation Act.

The facts of the case were as follows: In 1984, Sumitomo Corporation (appellant) entered into a Joint Venture Agreement with two of the respondents, which clearly specified the rights and obligations of the parties, and also included an arbitration agreement. Subsequently, in 2005, the parties entered into another agreement for transfer of shares, which also included an arbitration agreement. In May-June 2006, a dispute arose between the parties in relation to the interpretation of the Joint Venture Agreement with respect to the powers of nomination to the board of directors. The Respondents filed a petition before the Company Law Board, Principal Branch, New Delhi, seeking redressal under Sections 397, 398 and 402 of the Companies Act, 1956. The appellant filed an application seeking reference to arbitration under Section 45, or Section 8 of the Arbitration and Conciliation Act. On the Company Law Board’s refusal to do so, the appellant filed an appeal under Section 50 of the Arbitration and Conciliation Act in the High Court of Delhi. The High Court found that it lacked territorial jurisdiction over the matter, as Section 10(1)(a) of the Companies Act would take precedence over Section 50 of the Arbitration and Conciliation Act. Aggrieved by this, the appellant came before the Supreme Court.

Section 50(1)(a) of the Arbitration and Conciliation Act provides that an appeal shall lie from an order refusing to refer the parties to arbitration… to the Court authorized by law to hear appeals from such order (Emphasis Supplied). On the other hand, Section 10(1)(a) of the Companies Act provides that the Court having jurisdiction will be the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situated. Moreover, Section 10F specifically provides that an appeal from a decision made by the Company Law Board would lie to the High Court. Therefore, in order to determine territorial jurisdiction, the first thing the Court had to determine was which of the provisions – Section 50(1)(a), or Section 10(1)(a) - would be applicable. 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 within whose territorial jurisdiction the registered office of the Company is situated or is it the High Court having jurisdiction in relation to the place at which the Company Law Board makes the order under appeal.

The appellants contended that the correct forum for hearing the appeal was provided under Section 50 of the Arbitration Act and not any provision under the Companies Act. Section 50 of the Arbitration Act specifically provides for appeal against orders refusing to refer the parties to Arbitration under Section 45 of the Arbitration Act. It was further contended that Arbitration Act is a ‘complete code’ in itself as far as arbitration law is concerned. Moreover, being a special statute dealing specifically with the law of arbitration, it should have precedence over any similar provisions under Companies Act. Therefore, it contended that the appropriate Court authorized by law under Section 50 is the Court having jurisdiction at the place where the Company Law Board heard the matter, which in this case, was the Delhi High Court.

On the contrary, it was argued that as per Section 50, the appropriate forum for hearing the appeal from the orders of Company Law Board is the High Court within the jurisdiction of which the Registered Office of the company in issue is situated (the Madras High Court, in the present case). This is in accordance with Section 10F read with Section 10(1)(a) of the Companies Act.

The apex Court giving precedence to Section 10(1)(a) r/w Section 10F observed that only the forum which is authorized to hear appeals from the Company Law Board would possess the jurisdiction to hear such appeals. It is a specific appellate forum and not every Court exercising civil jurisdiction can entertain such appeals. And as per Section 10F & 10(1)(a), it is the High Court within whose territorial jurisdiction the Registry office of the Company in issue is situated.

The Supreme Court observed that the appeal always lies to the Court which is authorized to hear the appeal. It is not the Court which would have possessed original jurisdiction had the matter been brought to it at first instance as a suit. Therefore, the appeal would not lie to the High Court having jurisdiction in relation to the place at which the Company Law Board makes the order under appeal. Thus, reading Section 10(1)(a) with Section 10F, the Court concluded that Madras High Court had the territorial jurisdiction to hear the matter, as the Registered Office was situated within its jurisdiction.

Therefore, the important of this judgment lies in settling the law on the point of precedence in the event of a conflict between provisions of two of the most important and topical acts in modern commercial law, the Companies Act and the Arbitration and Conciliation Act.

- Gautam Bhatia & Venugopal Mahapatra

1 comment:

Suneha said...

v. good analsis...u rite well...

tell me...do you think pmanent crt of arbitrtion in new delhi will fall under this judgment too?