392 October 20 To October 26, 2018 u Taxmann’s Corporate Professionals Today u Vol. 43 u^34
However, this is not a rigid or inflexible
rule. Disputes relating to sub-ordinate rights
in personam arising from rights in rem can be
arbitrable. The issue of arbitrability has to be
decided by the court seized of the suit and
cannot be left to the arbitrator to decide.
The case of Rakesh Malhotra v. Rajinder
Kumar Malhotra [2015] 53 taxmann.
com 135 (Bom.)
- The Act does not contemplate partly referring
a dispute to arbitration. Bifurcation of cause
of action brought before a judicial authority so
that part of it covered under the arbitration
agreement to be resolved by arbitration and
the parts not covered to be decided by arbitral
tribunal is not permissible^2. Relying on this
principle, the Bombay High Court rendered
a judgment in Rakesh Malhotra v Rajinder
Kumar Malhotra (“Malhotra case”) to the
effect that all O&M petitions are outside the
purview of arbitration as the reliefs which
can be granted by the Tribunal u/s 242 of
the 2013 Act are of such a wide sweep which
cannot possibly be granted by an arbitral
tribunal. Where a petition related to O&M is
filed seeking reliefs some of which are in the
nature of reliefs in rem and some in personam,
it is not permissible to sever one from the
other. The only exception to this is when
the O&M petition is mala fide, vexatious and
a dressed up one through clever drafting to
hold out as an O&M petition. Such petitions
containing only disputes regarding breach of
Agreements containing arbitration clauses in
substance, will have to be dismissed by the
NCLT and must be referred to arbitration if
an application is made.
Since this judgment, NCLTs all over India
have been deciding applications by referring
O&M petitions to arbitration relying on
the Malhotra judgment. Some examples are
discussed below:
- Sidharth Gupta v. Getit Infoservices (P.)
Ltd. [2016] 71 taxmann.com 99 (CLB -
New Delhi)
Mere violation of law or Articles or the
agreement, unless done with malfea-
sance will not automatically bring the
dispute within the ambit of S. 397/398.
It has to be shown that the conduct
of the persons in the management is
either prejudicial to the interest of the
company or interest of the members
of the company. Allegations such as
conducting meeting on short notice,
valuation not being in compliance with
the Articles, etc., were observed to be
squarely covered under the Agreement
which provides for resolution through
arbitration. Therefore, the petition was
dismissed it was dressed up to hold
out as an O&M Case.- Gleneagles Development (P.) Ltd. v. Thota
Gurunath Reddy [2017] SCC Online
NCLT 1177 (NCLT - Hyderabad).
Tribunal held that approaching it with
allegations of O&M amidst negotia-
tions without resorting is not tenable.
Interestingly, an inquiry to determine a
prima facie case of O&M was not made
in this case but parties were directed
to exhaust the dispute resolution mech-
anism mutually agreed upon. - Punita Khatter v. Explorers Travellers &
Tours (P.) Ltd. [2017] 84 taxmann.com
59 (NCLT - New Delhi)
In this case the contention that the petition
is a dressed up one was not accepted.
Allegations regarding siphoning of
funds, not conducting board meetings,
non-issuance of share certificates, not
providing statutory documents to the
petitioner (in violation of the Articles)
were held to prima facie, constitute a
case of oppression and, hence, can be
entertained only by CLB.
The prevailing position is that the Tribunal
has to inquire into whether the allegations
prima facie make out a case of oppression.
If they do not, and are merely violations of
Agreement containing arbitration clause, the
dressed up exception comes into play and
arbitration clause is triggered.
arbiTraTing OPPressiOn and mismanagemenT in india