Jurisdictional Dilemma: Competing
Non- Obstante Clauses in the Oppression and Mismanagement Claims
This post is based on a part of the paper selected for publication in the Company Lawyer.
The provisions of the CA 1956 provide for the mechanism to address the issues of oppression and mismanagement with vast authority to grant reliefs.[1] The provisions of ss 397 and 398 CA 1956 are the charging provisions in such disputes, authorizing the invocation of wide jurisdiction of the CLB in granting relief to put an end to the grievances of the complainant.[2]
The provisions of the CA 1956 provide for the mechanism to address the issues of oppression and mismanagement with vast authority to grant reliefs.[1] The provisions of ss 397 and 398 CA 1956 are the charging provisions in such disputes, authorizing the invocation of wide jurisdiction of the CLB in granting relief to put an end to the grievances of the complainant.[2]
On the other
hand, the provisions of the Act 1996 provide for an alternative dispute
resolution mechanisms to the parties to a dispute, which they had agreed to do.
The CA 1956 contains an overriding provision
stating that its provisions shall have effect, even to the extent of overriding
all the agreements that a Company might execute contrary of these provisions.[3]
At the same time, it is argued
that s 5 r/w s 8 of the Act contain an overriding provisions to refer a dispute
for arbitration, once the matter before the Court is one that is the subject of
an arbitration agreement. S 5 states that “nothing contained in the laws for the time being in force shall allow any judicial
authority to intervene in the matters governed by the Act 1996, unless the Act
1996 itself provides it, whereas s 8 makes a reference to the arbitration
mandatory.
The text of Section 8 reads: 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 than when submitting his first statement on the
substance of the dispute, refer the parties to arbitration.”
The most common
approach for the purposes of resolving a conflict between two provisions of
different Acts is to ascertain as to which one of the statutes was later in
time. In
the case of Solidaire India,[4]
the Supreme Court had held that where there a two conflicting non-obstante clauses in different
statutes, then, the non- obstante clause
of that Act would prevail which was enacted later in time. The reason of such a
position is because it is presumed that when the later Act was being drafted,
the legislature had the knowledge of the presence of a non- obstante in that conflicting previous statute and consequently, it introduced another non- obstante clause in a new statutory
enactment to override the existing laws.[5]
Therefore, by
this proposition, since the Act was enacted in 1996, and the provisions of ss 9
r/w 397 to 402 CA 1956 had existed prior to it, it must be presumed that the
enactment of ss 5 r/w 8 in the Act 1996 was with a view to override the
provisions of CA 1956.
However, there is
a deeper analysis at play here. The Courts have provided for an exception in cases
where if the later in time statute is a general
statute, then, the previous specific statute
prevails.[6]
An issue arose regarding the jurisdiction of Debt Recovery Tribunal, when there was an
arbitration agreement between the parties regarding the same subject matter.
The Court held that since the Recovery of Debts Due to Banks and Financial
Institutions (RDB) Act 1993 specifically dealt with the issue of the recovery of debts by the
Banks, the overriding provisions of s 34 of the RDB Act override the provisions
u/ss 5 r/w 8 of the Act, even though the Act was a later statute.[7]
The Court, further, noted
that the Act 1996 is a general statute, since it consolidates the law relating
to domestic arbitration, international, commercial arbitration and dealt with a
vast number of subjects in law.[8]
Similarly, due to the
existence of s 2 (3)[9]
of the Act 1996, decisions rendered with regard to matters falling within the
jurisdiction of the Small Causes Courts,[10]Consumer Protection Act,[11]
wherein the Court had upheld the jurisdiction of these specialized even in
cases of existence of an arbitration agreement, still hold good on the basis of
reasoning.
Clearly, reaching a
conclusion on this issue is not easy. So,
here another aspect is to be taken note of.
Parties to an arbitration agreement seek to arbitrate disputes due to simplicity, informality, and expeditious
nature of proceedings and
replace the procedures and opportunity for
review of the courtroom.[12]
The argument that parties
merely by making an agreement cannot circumvent the statutory rights and other
provisions, it is submitted, suffers from are two flaws; (i) that there seems
to an unintended assumption that by
entering into such an agreement, the parties are losing out from all the forums providing it a redressal
mechanism and (ii) moreover, in such a scenario the sanctity of a promise is
not accorded its due consideration.
It is submitted
that in such cases, the intention of the parties must be ascertained by giving
effect to the bargain of the parties and from the words used in the contract.[13]
It has been a settled position of law in India, that if the disputes or
differences relate to the terms of the contract containing the arbitration
clause, then, the parties are bound to take recourse to arbitration.[14]
An arbitration
agreement is a form of contract, disclosing a determination and obligation on
the agreeing parties to go to arbitration in case of any disagreement.[15] The Courts in US have adequately and aptly
addressed this issue, when they held that merely because the parties have
agreed to a statutory claim does not mean that they have waived the substantive
rights conferred by a statute on them, instead the resolution of dispute is
submitted for arbitration,[16]
rather than to a judicial forum.[17]
More specifically, when parties
agree to arbitrate disputes, they turn this general
statute of the Act 1996, into a specific
forum and procedural law for them. In other words, they agree to arbitrate
their disputes by this alternative dispute resolution mechanism only. So, in
such a case, the principle of generalia
specialibus non derogant does not apply, as both laws are made
specific, one by statutory framework, the other by parties consent r/w ss 5 and
7 of the Act.
This post is based on a part of the paper 'Arbitrability of Oppression and Mismanagement Disputes: Issues and Challenges'.
This post is based on a part of the paper 'Arbitrability of Oppression and Mismanagement Disputes: Issues and Challenges'.
[1] The Companies Act 1956,
s 398, 399 r/w 402.
[3] CA 1956, s 9; Avinash
Kumar, ‘Arbitrability
of Oppression and Mismanagement Petitions in India’, Statute Law Review, doi:10.1093/slr/hmv002.
[5] ibid.
[6] Maharashtra Tubes v State Industrial and Investment
Corporation of Maharashtra (1993) 2 SCC 144.
[8] ibid, para 25.
[9] The Act 1996, Section 2
(3) states:
“This Part
shall not affect any other law for the time being in force by virtue of which
certain disputes may not be submitted to arbitration.”
[14]Twentieth Century Finance Corpn Ltd v RFB Latex Ltd (1999) 97 CompCas 636
CLB, para 7; Airtouch International (Mauritius) Limited v RPG Cellular Investments
and Holdings Private Limited [2004] 121 Comp Cas 647 (CLB), para 6.
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