Company Law Board Akkadian Housing And Infrastructure ... vs Pantheon Infrastructure Private ... on 3 July, 2006 Equivalent citations: [2007]77SCL53(CLB) ORDER S. Balasubramanian, Chairman 1. Whether a reply filed by a respondent to an application seeking for interim relief could be considered to be the first statement of substance disentitling the said respondent from invoking the provisions of Section 8 of Arbitration and Conciliation Act, 1996 seeking for referring the parties to arbitration is the main issue that has arisen for consideration in this order. 2. The facts of the case are: The petitioners have filed this petition under Section 397/398 of the Companies Act, 1956 alleging oppression and mismanagement in the affairs of Pantheon Infrastructure Pvt. Ltd. (the company). The 2ndpetitioner, a Canadian National (Group A) entered into an agreement dated 23.12.1999 with the 2ndrespondent (Group B) to form a joint venture to purchase and develop a property then belonging to M/S Park Davis Limited. Some of the salient terms of the agreement are: a. Both Groups will have equal shares in the company. b. Both will contribute equally towards the consideration for the property, c. Group B will be entitled to sell, lease, pledge or otherwise dispose of the property in consultation with Group A. d. All the funding by the Groups will be repaid out of the sale proceeds and the resultant profit will be divided equally. e. Of the 6 directors on the Board, each Group will appoint 3 nominees and till the property was conveyed to the company, the 2ndpetitioner was to be the Chairman and thereafter the Chairmanship would be rotated between the two Groups every year. f. No decision is to be taken in Board meetings unless a quorum of two representing both the Groups is present, g. Certain decisions have to be taken with the affirmative vote of both the Groups. h. Conditions have been fixed under which transfer of shares would be permissible and preemptive rights have also been provided. i. An arbitration clause in the following terms has been included in the agreement "Any disputes or difference of opinion in connection with the interpretation of this agreement as well as implementation and execution thereof or any matter concerning the matters contained herein or in connection with the affairs of the company or in connection with any deadlock which may arise at any meeting whether that of board of directors or members in general meetings, shall be settled by the parties by mutual discussion and in the even of failure of the parties hereto to resolve the said differences or disputes, same will be referred to arbitration, and such proceedings shall be in accordance with the provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification or reenactment thereof for the time being in force and the place of arbitration will be Mumbai. 3. By a supplementary agreement dated 15th June, 2000, the 3rd respondent (Group C )was also inducted as a shareholder and it was provided that all the three Groups would have l/3rd shares in the company and to effect this shareholding Group A and B would transfer shares to Group C. Thereafter, the respondent was also inducted as a shareholder by which all the three Groups agreed to divest 5% shares in favour of the 4th respondent on the understanding that he would bring in Rs. 15 crores into the company. At this stage, the shareholding in the company was to be Group A, B, C each 28.33% and the 4th respondent15%. The main allegation of the petitioners in the present petition is that the 2ndrespondent, in the guise of divesting the shares in favour of the 3rd and 4th respondents, has actually cornered the divested shares to himself/his associate companies and by doing so, presently he is controlling 71.67% shares in the company as against the original understanding that Group A and Group B each would hold 50% shares each in the company. Other major allegations are that the 2ndrespondent, being in control of the company, has sold/leased out constructed areas of the project below the market rates and has thus siphoned of the funds of the company and that the 2ndpetitioner has been illegally declared to have ceased as a director in terms of Section 283(l)(g) of the Act. 4. When the petition was mentioned and interim reliefs were sought on 9.12.2005, the respondents desired to have some time to file their replies to the prayer for interim reliefs. Accordingly, the matter was adjourned to 15.12.2005. The 2ndrespondent filed an affidavit in reply to the interim reliefs on 14.12.2005. On 15.12.2005, the matter relating to grant of interim reliefs was part heard and concluded on 19.12.2005. On 19.12.2005, 1st, 2ndand 6th respondents each filed an application under Section 8 of the Arbitration & Conciliation Act, 1996 (the Act) seeking for referring the parties to arbitration in terms of the arbitration clause in the agreement date