2010 Supreme(Bom) 229

High Court of Judicature at Bombay
THE HONOURABLE DR. JUSTICE D.Y. CHANDRACHUD
Western Maharashtra Development Corpn.Ltd.
Versus
Bajaj Auto Limited
ARBITRATION PETITION NO.174 OF 2006
Decided on : 15-02-2010

Headnote:Arbitration & Conciliation Act, 1996 - Section 34 - Companies Act, 1956, Sections 9 and 111-A - Arbitral Award - Challenged by petitioner - Questioning jurisdiction of Arbitrator - Contention, protocol agreement entered between petitioner and respondent but no contract arrived at - Neither of parties accepted offer - Nor they agreed to cut off date for valuation of shares - Held - Award, contrary to governing principles of law - Illegal - Arbitrator ignored express and specific provisions of Companies Act - Lost sight of mandate of Section 111-A of Act 1956, concept of free transferability of shares of Public Limited Company - Failed to apply provisions of Section 9 of Act - Award set aside - Petition made absolute. - By the provisions of the Companies’ Act, 1956, restrictions on the transferability of sharers which are contemplated by the definition of a "private company’ under Section 3(1)(iii) are expressly made impermissible in the case of public company by the provisions of Section 111-A. Once that the position the submission urged on behalf of the respondent cannot be accepted. In essence, the submission of the respondent is that the provisions of Section 111-A should be read as being subject to a contract to the contrary. A restriction to that effect cannot be read into the provision of Section 111- A - firstly because, such a restriction is not mentioned in the statutory provision, secondly, the word "transferable" is of the widest import and thirdly, the context in which the provisions have been introduced is susceptible to the inference that it should be given a wide meaning. Where the language of the statuteis plain and unambiguous, neither the consequence nor the conduct of parties would be of relevance. Reliance was sought to be placed on a notification that was issued on 27th June 1961 by which in exercise of powers conferred by Section 28(2) of the Securities Contracts (Regulation) Act, 1956 the Central Government specified contracts of preemption as contained in promotion or collaboration agreement or in the Articles of Association of a Limited Company as contracts to which the said Act shall not apply. That notification, it has to be noted, related to an exemption from the provisions of the SCRA and cannot override the plain mandate of Section 111-A. Besides, Section 111-A was introduced in the Companies Act, 1956 by the Depositories Act, 1996 with effect from 20th September 1995. The plain intendment and meaning of Section 111-A must prevail.

       The arbitral award on this aspect of the matter, is completely contrary to the governing principles of law. The award is contrary to substantive provisions of law and is patently illegal. The illegality in the present case, is some thing that goes to the root of the matter and is certainly not one which can be termed as of a trivial nature. The award must in the circumstances, be held to be contrary to public policy. The Arbitrator cited the judgment of the Supreme Court in Modhusoodhanan’s case and held that the principle which was laid down in the earlier judgment in Rangaraj was inapplicable inasmuch as the restriction creating a preemptive right was incorporated in the Articles of Association. The Arbitrator proceeded on the basis that the presence of a clause conferring a right of preemption in the Articles of Association was sufficient to dispose of the challenge to the legality of the provision. In this, the Arbitration has fallen into a patent illegality. The fact that the restriction is contained in the Articles of Association would deal with the submission based on application of the Rangaraj principle. But that is not dispositive of the legality of a provision by which a right presumption is created in the case of a Public Limited Company. The Arbitrator has ignored the express and specific provisions of the Companies Act, 1956 lost sight of the very concept of free transferability of the shares of a public Limited Company and failed to apply the provisions of Section 9 under with overriding force is given to the Act notwithstanding anything to the contrary contained in the memorandum, articles or agreement.

       For all these reasons, the award of the learned Arbitrator would have to be set aside. The petition is accordingly made absolute in terms of prayer clause (a) by setting aside the award. There shall be no order as to costs.