he conundrum surrounding oppression and mismanagement The National Company Law Tribunal (NCLT) has been vested with powers to adjudicate all disputes arising under the Companies Act. In addition, Section 8 of the Arbitration Act further obliges courts to refer parties to arbitration where there exists an arbitration clause in the underlying contract. Therefore, apparently there seems to be a conflict of jurisdiction arising out of: (i) a privately executed contract (SHA) where the dispute resolution clause provides arbitration as the mode of dispute settlement; and (ii) a dispute arising out a statute (Companies Act) like cases for oppression and mismanagement where ordinarily NCLT has jurisdiction. Prior to the test of arbitrability put forth in Booz Allen16, O&M disputes were strictly held to be outside the purview of arbitration. In Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.17, the Court while adjudicating upon the winding up of a company held that winding up is an act which makes the company insolvent and affects the company and its members at large. Therefore, arbitration as a dispute resolution mechanism cannot replace or override statutory powers of court irrespective of an existing agreement between the parties. The uncertainty surrounding the determination of arbitrability of disputes relating to O&M is characterised not by the absence of a definite test of arbitrability in India but by the ambiguity of the scope of a singular test. The test laid down in Booz Allen18, that unlike disputes involving rights in rem, only disputes involving rights in personam are arbitrable is arguably the only proper test other than the public policy test. However, unlike the test of arbitrability based on public policy, the scope of interference as explained in Booz Allen19 is largely uncertain in as much as disputes relating to subordinate rights arising from rights in rem have always been considered to be arbitrable. Given that the remedy against O&M is statutorily based and that the NCLT has wide powers to issue orders binding on third parties dealing with the company in question [for example, terminating, modifying, or setting aside any agreement(s), unwinding any sale/ transfers which constitute a fraudulent preference and directing a shareholder to buy out other shareholder(s)], an Arbitral Tribunal being a private fora is not competent to award such remedies. If the issues arising out of a dispute cannot be strictly bifurcated between in rem or in personam i.e. if the dispute does not arise entirely out of an SHA, but affects statutory rights of other members of the company, then the remedy available under Sections 24120 and 24221 has to be mandatorily exercised. Thus, the determination of arbitrability is based on the nature and source of the right/power that is sought to be invoked as held in Rakesh Malhotra v. Rajinder Kumar Malhotra22 (Rakesh Malhotra). Unlike the reliance on the “rights” based approach as enunciated in Booz
he conundrum surrounding oppression and mismanagement The National Company Law Tribunal (NCLT) has been vested with powers to adjudicate all disputes arising under the Companies Act. In addition, Section 8 of the Arbitration Act further obliges courts to refer parties to arbitration where there exists an arbitration clause in the underlying contract. Therefore, apparently there seems to be a conflict of jurisdiction arising out of: (i) a privately executed contract (SHA) where the dispute resolution clause provides arbitration as the mode of dispute settlement; and (ii) a dispute arising out a statute (Companies Act) like cases for oppression and mismanagement where ordinarily NCLT has jurisdiction. Prior to the test of arbitrability put forth in Booz Allen16, O&M disputes were strictly held to be outside the purview of arbitration. In Haryana Telecom Ltd. v. Sterlite Industries (India) Ltd.17, the Court while adjudicating upon the winding up of a company held that winding up is an act which makes the company insolvent and affects the company and its members at large. Therefore, arbitration as a dispute resolution mechanism cannot replace or override statutory powers of court irrespective of an existing agreement between the parties. The uncertainty surrounding the determination of arbitrability of disputes relating to O&M is characterised not by the absence of a definite test of arbitrability in India but by the ambiguity of the scope of a singular test. The test laid down in Booz Allen18, that unlike disputes involving rights in rem, only disputes involving rights in personam are arbitrable is arguably the only proper test other than the public policy test. However, unlike the test of arbitrability based on public policy, the scope of interference as explained in Booz Allen19 is largely uncertain in as much as disputes relating to subordinate rights arising from rights in rem have always been considered to be arbitrable. Given that the remedy against O&M is statutorily based and that the NCLT has wide powers to issue orders binding on third parties dealing with the company in question [for example, terminating, modifying, or setting aside any agreement(s), unwinding any sale/ transfers which constitute a fraudulent preference and directing a shareholder to buy out other shareholder(s)], an Arbitral Tribunal being a private fora is not competent to award such remedies. If the issues arising out of a dispute cannot be strictly bifurcated between in rem or in personam i.e. if the dispute does not arise entirely out of an SHA, but affects statutory rights of other members of the company, then the remedy available under Sections 24120 and 24221 has to be mandatorily exercised. Thus, the determination of arbitrability is based on the nature and source of the right/power that is sought to be invoked as held in Rakesh Malhotra v. Rajinder Kumar Malhotra22 (Rakesh Malhotra). Unlike the reliance on the “rights” based approach as enunciated in Booz
Created using ChatSlide
This analysis explores the complexities of jurisdiction between the National Company Law Tribunal (NCLT) and arbitration in corporate disputes. It highlights the preference for private resolution through SHA clauses, while also addressing statutory remedies under Sections 241-242. The discussion includes arbitrability tests, emphasizing judicial uncertainty and the distinction between rights in rem and in personam. Furthermore, it applies the nature-and-source test, asserting that NCLT holds...