Rolab Polymers (P.) Ltd. vs Subhadra Enterprises

Ar. Lakshmanan J.

The respondent in the main company petition is the applicant herein. The present application has been filed under Order 14, rule 8 of the

Original Side Rules read with rules 9 and 11 of the Companies (Court) Rules, 1959, to stay the company petition till the dispute is resolved

through arbitration u/s 34 of the Arbitration Act, 1940.

The respondent herein, who is the petitioner in the main company petition, filed the company petition u/s 433(e), 434(1)(a) and (f) and 439(1)

(b) of the Companies Act, 1956, for an order of winding up of the petitioner-company herein and for other reliefs. Their case is that on August 19,

1988, an agreement was entered into between the parties at Calcutta in and by which the petitioner-company herein appointed the respondent as

its consignee, storing and forwarding agent in the eastern region on the terms and conditions contained in the said agreement dated August 19,

1988. A copy of the said agreement has been filed as document No. 1. The said agreement was modified and/or supplemented by the petitioner-

company (respondent in the company petition) through their letter dated August 22, 1988, and the various terms and conditions contained in the

said letter were accepted by the respondent herein. The petitioner herein sent a letter dated September 22, 1990, enclosing a statement of account

to the respondent herein, which is filed as document No. 8. Since the statement of account sent suffered from various irregularities, the respondent

herein sent a letter dated December 1, 1990, enclosing a revised statement of account to the petitioner herein. As per the revised statement, the

petitioner herein had to pay a sum of Rs. 5,64, 470.25 as on November 30, 1990, to the respondent, which includes trade deposit and interest.

Since the petitioner-company has failed and neglected to pay the sum towards trade deposit and interest, the respondent caused a legal notice

dated August 16, 1991, to be addressed to the petitioner u/s 434 if the Act, calling upon the petitioner to pay to the respondent the said sum, etc.

However, the petitioner-company attempted to build up a story of oral agreement, etc., which is an afterthought to delay the course of action.

According to the respondent, the petitioner is unable to pay its debts and hence it is just and equitable that the petitioner- company should be

wound up since the petitioner-company must be deemed to be commercially insolvent and unable to pay its debts.

I admitted the main company petition filed by the respondent and ordered notice to the petitioner herein on January 9, 1992. On receipt of

notice, the petitioner has filed the above company application to stay the main company petition till the dispute is resolved through arbitration u/s 34

of the Arbitration Act, 1940.

According to the petitioner, clause 22 of the agreement provides for the resolution of all disputes only by resort to arbitration and hence the

respondent herein should only seek their remedy, if any, by arbitration and hence, the company petition has, therefore, to be stayed pending

adjudication under the Arbitration Act.

The respondent herein filed a detailed counter-affidavit. According to them, this petition is not maintainable and there is no dispute in repayment

of the balance of trade deposit and no details has been given about the alleged dispute between the parties. It is useful to extract paragraph 9 of the

counter-affidavit to understand what exactly is the contention of the respondent herein :

I submit that the respondent herein has filed the above company petition against the applicant herein to wind up the applicant-company under the

provisions of the Companies Act, since the applicant-company is unable to pay their admitted debts. Inasmuch as the applicant- company has

admitted their liability to repay the balance of trade deposit by their letters dated March 21, 1991, and March 8, 1992, and the applicant herein

did not raise any bona fide dispute with regard to the repayment of the balance of trade deposit to the respondent herein, there is no question of

the respondent herein settling any dispute by arbitration in accordance with law. The allegations that all the disputes arising between the petitioners

and the respondents have to be resolved only by resort to arbitration and that instead, the respondent herein have filed this Company Petition No.

112 of 1991 is absolutely meaningless and unsustainable. As already stated inasmuch as the applicant-company has admitted their liability to repay

the balance of trade deposit by their letters dated March 21, 1991, and March 8, 1992, and did not raise any dispute, the respondent herein has

rightly approached this Hon''ble Court.

It is beneficial at this stage to refer to clause 22 of the agreement. The said clause reads as follows :

All disputes arising between the parties including interpretation hereof will be settled by arbitration in accordance with law. The venue of the

arbitration shall be at Coimbatore.

The petitioner herein has taken out this application stating that under the above clause, all disputes arising out of the contract will be settled by

arbitration in accordance with law. It is, therefore, contended by Mr. P.K. Jamal Mohammed, learned counsel appearing for the petitioner, that the

company petition filed for winding up of the petitioner-company should be stayed.

Per contra, Mr. Chandramouleeswaran, learned counsel for the respondent, contends that the matter arising for the decision in the company

petition is not one that arises under the contract and that, therefore, the company petition is not liable to be stayed. The relevant clause has already

been extracted above.

The question is, whether the institution of the petition for winding up is a proceeding that would come up under the above arbitration clause. No

doubt, the language employed in clause 22 of the agreement is wide enough to cover any dispute that may arise out of the contract.

The question for my decision in this company petition is not a matter that arises under the contract or out of the contract. The allegations made

by the respondent-company in the main company petition are relevant and important to be noticed in this context. The respondent- company has

filed this company petition on the allegations that the petitioner-company has admitted its liability for a particular amount. There are specific

averments in the main company petition and in the counter-affidavit filed by the respondent herein to the said effect. The petitioner has admitted

their liability to repay the balance of trade deposit to the respondent by their letters dated March 21, 1991, and March 8, 1992, and even in their

balance-sheet up to March 31, 1991. According to the respondent herein, there is no dispute in repayment of the balance of trade deposit to the

respondent herein. That apart, the present application is bereft of particulars, in that, the petitioner herein has not even mentioned in the affidavit

that there is a dispute in regard to the repayment of the balance amount due to the respondent herein. The petitioner has not given any details about

the alleged disputes between the parties.

The respondent has filed the company petition to wind up the petitioner-company under the provisions of the Companies Act since, according

to the respondent, the petitioner herein is unable to pay its admitted debts. Inasmuch as the petitioner herein did not raise any bona fide dispute

with regard to repayment of the balance of trade deposit to the respondent herein, there is, in my opinion, no question of the settling of any dispute

by arbitration. The respondent herein, in my opinion, has rightly approached this court under the provisions of the Companies Act and hence, the

arbitration clause provided in the agreement cannot be invoked. There is no dispute to be decided by the arbitrator and hence there is no question

of any stay being granted pending adjudication under the Arbitration Act. However, I do not wish to express any opinion on the question, viz.,

whether the petitioner-company is unable to pay the debt. If the debt itself is disputed, it would be a matter for consideration in the company

petition whether an enquiry into that controversy is permissible under the provisions of the Companies Act. Suffice to notice that so far as the relief

claimed in the company petition is concerned, I do not think that it can be said to arise out of the agreement referred to supra, and I am of the view

that the right to apply for winding up is a creature of statute and not of a contract. u/s 34 of the Arbitration Act, if any party to an arbitration

agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming

under him in respect of any matter agreed to be referred, any party to such legal proceedings may apply therein for stay of the proceedings. It

would be seen from the above provision that the legal proceeding which can be stayed should be a proceeding in respect of any matter agreed to

be referred. The expression ""any matter agreed to be referred"" makes it clear that, unless the matter has been agreed to be referred, the

proceeding cannot be stayed, even though it may incidentally have a bearing upon the contract providing for arbitration. In the instant case, it

cannot, by any stretch of reason, be said that the parties contemplated that any reference to arbitration for winding up the applicant-company was

possible or could be done by an arbitrator. In that view, I think, the company petition is not liable to be stayed. The application is accordingly

dismissed. No order as to costs.