October 20 To October 26, 2018 u Taxmann’s Corporate Professionals Today u Vol. 43 u (^35393)
So, what happens when such violations,
even though of an agreement containing
arbitration clause, amount to oppression as
well? The position of law with regard to
this aspect was settled in the UK by the
judgment in Fulham Football Club (1987) Ltd.
v. Sir David Richards [2011] EWCA Civ 855
where the unfair prejudice petition alleged
that the Director participated in negotiations
related to transfer of a football player in
a way detrimental to the Club. Petitioner
sought an injunction prohibiting Richard
from acting as an unauthorized agent in
violation of the Articles and his removal
as Chairman and Director. Respondents
requested a stay contending that the matters
in issue were within the terms of arbitration
agreement. Arguments made against reference
to arbitration were along the lines that only
Courts could grant relief in unfair prejudice
cases under Section 996 of the Companies
Act, that unfair prejudice regime is part of
Court’s supervisory jurisdiction etc. Birth, life
and death of company cannot be subject to
private contractual arrangement^3.
The UK Court of Appeal held that all the
reliefs sought by FAPL could be granted
by arbitrator, who could also determine
whether there had been unfairness or not.
Merely because there were certain reliefs
which only the Court could grant such as
winding up, would not mean that these
cases were entirely outside the purview of
arbitration. Where the dispute was squarely
covered within the Arbitration Agreement,
third parties were not to be bound and the
reliefs sought were those which could be
granted by an arbitrator, parties had not to
be prevented from arbitrating in the disputes
alleging unfair prejudice.
In India, as per the law laid down in Malhotra
case, disputes of the above nature cannot
be referred to arbitration even if the reliefs
claimed are those which can be granted by
an arbitrator. However the Apex Court’s
judgment in Booz Allen may make such a
reference possible if the reliefs sought can
be granted by an arbitrator and the nature
of the dispute is in personam, i.e., oppressive
conduct arising from breaches of Agreement,
even if it involves non-signatories in exceptional
cases^4 or when non-signatories are impleaded
merely to avoid arbitration^5 Further, there is
no reason why the arbitrator cannot decide
whether the company is functional or not
while leaving it to the Court to make the
order of winding up^6. Appeals against an
NCLT order refusing to refer the parties to
arbitration may be made to NCLAT under
Section 37 of the Act^7
Concluding Remarks
- While efforts are being made to reduce
litigation at every level, a blanket ban on
arbitration may not be the most welcome
approach, considering the volume of O&M
disputes in India. Arbitration comes with the
added advantage of confidentiality because
O&M disputes, even if decided in favour
of the company may still cast doubts on
the corporate governance standards of the
company, thus affecting it prejudicially. A
pro-arbitration approach needs to be taken by
the Tribunal while deciding O&M cases, at
least in the aforementioned factual situations.
lll
arbiTraTing OPPressiOn and mismanagemenT in india- Shri Vimal Kishor Shah v. Mr. Jayesh Dinesh Shah Civil Appeal No. 8164 of 2016
- Sukanya Holdings (P.) Ltd. v. Jayesh H. Pandya [2003] 44 SCL 146 (SC)
- A Best Floor Sanding Pty Limited v. Skyer Australia Pty Ltd. [1999] VSC 170 (Warren J.).
- Chloro Controls (India) (P.) Ltd. v. Severn Trent Water Purification Inc. [2006] 71 SCL 396 (Bom.) ¶68 Vijay Sekhri
v. Tinna Agro Industries [2011] 3 taxmann.com 103 (CLB) - Kotak Mahindra Ltd. v. Sundaram Brake Lining Ltd. [2008] 7 Mad LJ 1296.
- Everest Holding Ltd. v. Shyam Kumar Shrivastava [Arbitration No. 13 of 2007, dated 24-10-2008]
- Thota Gurunath Reddy v. Continental Hospital Ltd. [2018] 96 taxmann.com 395 (NCL-AT).