IMPORTANT POINT
Merely containing arbitration clause in memorandum of association of company does not create an arbitration agreement between the bank and company.

Prabir Kumar Samanta, Chairperson.— This appeal is directed the against judgment and order dated 20.1.2009 passed by the D.R.T., Cuttack in M.A. No. 566 of 2008 which arose out of the Original Application No. 187 of 2008.

2. The applicant-bank filed the aforesaid Original Application seeking recovery of the amount of Rs. 7,01,07,202/- (Rupees seven crores one lakh seven thousand two hundred two only) inclusive of interest up to 31.8.2008 from the defendants along with certain other reliefs. The defendant-borrowers entered appearance in the above Original Application and filed their written statement along with a counter-claim made therein.

3. The aforesaid defendants by making the aforesaid miscellaneous application has raised a preliminary issue as to the maintainability of the above claim case. It has been alleged that Debts Recovery Tribunal (DRT, in short, hereinafter) has no jurisdiction to entertain and try the aforesaid Original Application against these defendants as Article 19 of the Memorandum of Association of the defendant No.1 company clearly stipulates that all disputes shall be subject to arbitration. It has been so contended by the defendants as because the respondent-bank had sanctioned the above loan to the defendant No.1 company by acknowledging the incorporation of the company by the aforesaid Memorandum of Association. It has been contended with much emphasis that since Article 19 of the Memorandum of Association of the defendant No.1 company provides for resolving all disputes or differences arising between the company and any other person in connection with or in respect of any matter relating to the business or affairs of the company by arbitration, so the claim case of the applicant-bank, which is a dispute in relation to the business affairs of the company, is to be referred to arbitration. The learned Presiding Officer has however dismissed such contention of the defendants by his judgment and order dated 20.1.2009, which is under challenge in this appeal.

4. The defendants at the hearing have made references to the Clauses 24,35 and 38 of the loan agreement and Clause 19 of the Memorandum of Association in support of such contention. It is therefore necessary to reproduce those clauses:

The Clauses 34, 35 and 38 of the loan agreement read as under:

34. The borrower shall not (a) allow any Receiver to be appointed of the undertaking or of the properties, immovable and movable, of the borrower, mortgaged, pledged and/ or charged to the bank or any part thereof (b) allow any distress or execution to be levied upon or against the same or any thereof and (c) made or attempt to make without the previous consent of the bank in writing any alterations of its Memorandum or Articles of Association or in its capital structure.

35. The Borrower shall forthwith and from time to time as may be required by the bank make such alterations or additions to its Memorandum or Articles of Association or in its capital structure as may be necessary to confirm to this agreement.

38. During the subsistence of the liability of the borrower under or in respect of any of the aforesaid credit facilities, the bank without prejudice to its rights referred to in the agreement shall have a right to appoint and/or remove, from time to time, a Director or Directors on the Board of Directors of the borrower as nominee Director(s) to protect the interests or the bank, subject however that the Director(s) so appointed by the bank shall not be liable to retire by rotation and need not possess any share qualification prescribed by the Articles of Association of the borrower.

5. Clause 19 of the Memorandum of Association reads as under:

19. To refer all questions, disputes or differences arising between the company and any other person whosoever (other than a Director of the company) in connection with or in respect of any matter relating to the business or affairs of the company to arbitration in such manner and upon such terms as th