NCLT Holds Shareholders’ Dispute Under Sections 241–242 of Companies Act Not Referable to Arbitration:

The application was filed by Nowon Technologies Private Limited under Section 8 of the Arbitration and Conciliation Act, 1996, read with Rule 11 of the NCLT Rules, 2016, seeking reference of the pending oppression and mismanagement petition filed by Mr. Tono Thomas to arbitration. The applicant company submitted that the dispute essentially concerned the redemption of shares and payment of dividends under the Share Subscription Agreement dated October 30, 2009. It argued that the petitioner had merely presented the contractual dispute as a case of oppression and mismanagement under Sections 241–242 of the Companies Act, 2013.

The company relied upon Clause 23 of the Shareholders’ Agreement, which provided for resolution of disputes through arbitration, and submitted that the dispute ought to be adjudicated by an arbitral tribunal rather than the NCLT. Opposing the application, Mr. Tono Thomas argued that the arbitration clause was applicable only between him and the applicant company, whereas the oppression and mismanagement allegations and reliefs in the main petition were directed against other respondents as well, who were not parties to the Shareholders’ Agreement.

After considering the submissions and material placed on record, the NCLT observed that the mere presence of an arbitration clause in an agreement does not automatically make it obligatory for the parties to refer their disputes to arbitration. The Tribunal noted that issues concerning corporate governance are matters involving rights in rem and that the reliefs available under various provisions of the Companies Act, 2013, cannot be effectively granted through private arbitration.

Examining Clause 23 of the Shareholders’ Agreement dated October 30, 2009, the Tribunal noted that Clause 23.1 provided for resolution of differences through mutual discussions and, if such differences could not be settled, through arbitration under the Arbitration and Conciliation Act, 1996. However, after applying the principles laid down by the Supreme Court, the Tribunal concluded that Clause 23 did not satisfy the essential criteria required for an agreement to refer disputes to arbitration.

In view of the above findings and by following the principles laid down by the Supreme Court, the Tribunal held that Clause 23 of the Shareholders’ Agreement did not qualify as a valid arbitration agreement for referring the dispute to arbitration. Accordingly, the Tribunal declined to allow the application filed by Nowon Technologies Private Limited and rejected its prayer for reference of the matter to arbitration.