NCLT: Tribunal Has Power To Refer Matter To Arbitrator If Dispute Is Within The Realm Of Arbitration Agreement

NCLT: Tribunal Has Power To Refer Matter To Arbitrator If Dispute Is Within The Realm Of Arbitration Agreement

A petition was filed under Sections 241 & 242 of the Companies Act, 2013 alleging oppression and mismanagement in the affairs

The Mumbai Bench of the National Company Law Tribunal (NCLT) has dismissed an application and held that the tribunal is a judicial authority having the power to refer the matter to arbitration if it finds that the dispute was arbitral and fell within the scope of the arbitration agreement.

The bench comprising Kishore Vemulapalli (Judicial Member) and Prabhat Kumar (Technical Member) dismissed an application filed by the petitioner, Chaitra Gowdar Chidanand.

She had filed a company petition before the NCLT under Sections 241 and 242 of the Companies Act, 2013 alleging oppression and mismanagement in the affairs of respondent No.1, Get Simple Technologies Pvt. Ltd.

The petitioner submitted that the restructuring of respondent No.1 was done pursuant to a clause in the 14.07.2017 Shareholders’ Agreement, to which the petitioner was a party. Thus, it was a contractual dispute arising out of the agreement.

The Shareholders’ Agreement provides a widely worded arbitration clause and the subject matter of the disputes raised in the petition falls squarely within its purview.

Therefore, the applicant filed a Section 8 application seeking a reference of the disputes to arbitration; and consequently, the dismissal of the company petition.

The petitioner was aggrieved by the non-allotment of shares in respondent No.4 company due to delayed remittance, and the type of shares offered for subscription to her. The allotment was to be done, consequent of the restructuring contemplated in the Shareholders Agreement amongst the shareholders of respondent No.1 company, to have mirror shareholding in respondent No. 4 company.

The NCLT relied on the Vidya Drolia & Ors. vs. Durga Trading Corporation case, wherein the Supreme Court held that the issue of non-arbitrability could be raised at three stages.

The tribunal observed that the disputes regarding the restructuring of respondent No.1 were purely contractual and relatable to the Shareholders Agreement, as the resolution passed gave effect to the terms of the Agreement.

Also, since this issue arose from the Agreement, i.e., the re-incorporation plan of respondent No.1 and consequential rights of the petitioner, there was no need for repudiation of the resolutions passed in the Extraordinary General Meeting and the Board Resolution.

Additionally, the issue of the petitioner’s right to claim mirror shareholding in respondent No.4 company (despite belated remittance) was a factual issue. As contemplated in clause 7(d) of the Agreement, it could be considered by the mediator/arbitrator.

The NCLT observed that sufficient explanation and opportunity were granted to the petitioner to decide whether to subscribe to respondent No.4 shares. It held that the petition was curated to make contractual disputes as differences pertaining to oppression and mismanagement. It was done to avoid the binding arbitral clause since no violation of any shareholder rights (except for a single act arising from the Agreement) was provided.

The tribunal held that neither NCLT nor the arbitrator could direct respondent No.4 and its shareholders (other than signatories to the Agreement, not a party to it), to have shares allotted to the petitioners. This applied to the present petition even if it was not dressed up and had to be dealt with in accordance with Sections 241 and 242 of the Companies Act.

The bench highlighted that the claim of the petitioner pertained to the equitable treatment to her qua applicant, who was the initial founder of the business of respondent No.1, transferred to the subsidiary of respondent No.4. The petitioner claimed she must have been offered Class B shares (as offered to the applicant). She should be allotted shares at the initial offered price, even though she failed to remit the money, as there was no cut-off date prescribed for making such remittances.

However, the NCLT held that the issue arising out of the Agreement could be referred to the arbitrator.